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Natural gas: lessons of the price surge Inside the chip industry’s brain trust How bad will the flu season be?

As Germany votes: a special report SEPTEMBER 25TH–OCTOBER 1ST 2021

Resurfacing America in Asia

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CO L L ECTIO N

©Photograph: Laurent Ballesta/Gombessa Project

Fifty Fathoms

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BEIJING · DUBAI · GENEVA · KUALA LUMPUR · LAS VEGAS · LONDON · MACAU · MADRID MUNICH · NEW YORK · PARIS · SEOUL · SHANGHAI · SHENZHEN · SINGAPORE · TAIPEI · TOKYO · ZURICH

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Contents

The Economist September 25th 2021

The world this week 6 A summary of political and business news

9 10 12 12 On the cover

America is at last acting to counter China in Asia: leader, page 9, and briefing, page 17.

To China, the new alliance is proof that America’s plan is containment: Chaguan, page 36. The future of a big regional trade pact, page 61.

France feels left out: Charlemagne, page 45 Lessons of the gas-price surge The first energy squeeze of the green era, page 12, and analysis, page 60. An anti-green backlash could reshape British politics as radically as Brexit did: Bagehot, page 48

14

Leaders America in Asia Resurfacing Germany Merkel’s mess Energy shortages Gas puzzlers The Evergrande crisis Bail­outs and bedlam Multilateral institutions Why Georgieva should go

Letters 16 On war, Joe Biden, Pakistan, abortion, social media, Aristotle, Rembrandt, holidays Briefing 17 Asian geopolitics Enter aukus

Special report: Germany After Merkel After page 40

The chip industry’s brain trust The little-known organisation at the heart of the $550bn global chipmaking business, page 51 How bad will the flu season be?

During the pandemic the world has largely escaped flu. But as the northern winter draws in, scientists fear it may return, page 49 A special report on Germany When Angela Merkel bows out, her successor will face big unresolved problems: leader, page 10, and special report after page 40. None of the politicians vying to succeed her has her knack for appealing to a centrist electorate, page 41

21 22 23 24 24 25 26

27 28 28 29

30 31 32 32 33

United States Housing in California To boost, or not to boost Covid­19 and schools University politics The George Floyd eff ect Mississippi’s last abortion clinic Lexington Chuck Schumer The Americas Canada votes Chile’s farmed fi sh Medieval mapping Bello An exiled Nicaraguan

Asia Japanese democracy Love hotels in India Duterte and the icc South Korean media Banyan Myanmar’s wars

China 34 Reaching the diaspora 35 Climate­change promises 36 Chaguan Pondering the aukus pact

37 38 39 40

Middle East & Africa South African inequality Nigerian megachurches Bye, bye Boutefl ika Lebanon’s energy crisis

Schumpeter Peter Thiel is reinventing America’s military­industrial complex, page 58

→ Activating the digital element of your subscription means that you can search our archive, read all of our daily journalism and listen to audio versions of our stories. Just visit economist.com/activate Contents continues overleaf

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Contents

41 43 44 44 45

The Economist September 25th 2021

Europe Germany votes The power of the fdp The rigging of Russia The church in Sweden Charlemagne France’s humiliation

59 60 61 62 63 64 66

Britain 46 A broken energy market 47 Debrett’s goes digital 48 Bagehot Dirty politics

International 49 The coming flu season

51 52 54 56 56 56 57 58

Business The chip business’s brain trust American shopping Berlin Inc Universal Music is a hit Goodbye, handshake Japanese battery-makers Bartleby Stakeholder blues Schumpeter Peter Thiel v Silicon Valley

Finance & economics The folly of Evergrande The gas crisis China’s trade gambit Buttonwood Just add crypto The rental-property boom Corporate borrowing Free exchange Debt ceilings

69 70 71 71

Science & technology Augmented-reality war Early American footprints The comforts of religion The evolution of fruit

72 73 74 74 75

Books & arts A paean to reason Underground London Behind “12 Angry Men” Dystopian fiction An artist’s wizardry

Economic & financial indicators 76 Statistics on 42 economies Graphic detail 77 How people spread across the Pacific islands Obituary 78 Clive Sinclair, inventor of the future

Volume 440 Number 9264 Published since September 1843 to take part in “a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress.”

Editorial offices in London and also: Amsterdam, Beijing, Berlin, Brussels, Chicago, Dakar, Dallas, Dubai, Johannesburg, Madrid, Mexico City, Moscow, Mumbai, New Delhi, New York, Paris, San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC

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6

The world this week Politics known as the Comprehensive and Progressive Agreement for Trans­Pacifi c Partnership.

Taiwan also asked to join.

France reacted with fury to American, Australian and British plans to form a new defence pact in the Pacifi c.

France was not invited to join.

Australia is also cancelling a contract for French diesel­ powered submarines in favour of American (or just possibly British) nuclear­powered ones.

Jean­Yves Le Drian, the French foreign minister, called it a “stab in the back”, and with­ drew his ambassadors from Washington and Canberra, though they are now being sent back following a make­up call between presidents Joe Biden and Emmanuel Macron.

Germans got ready to vote in a general election on September 26th that will mark the end of Angela Merkel’s 16 years in power, as she is standing down. The polls have narrowed slightly, but the Social Democrats are still running ahead of Mrs Merkel’s Christian Democrats.

In Russia, elections to the Duma produced another supermajority for United Russia, the pro­Putin party through which the Kremlin wields legislative power. The election was widely seen as rigged. But few Russians took to the streets to protest, unlike in 2011, when thousands did.

China’s president, Xi Jinping, said that he would stop sup­ porting new coal­power pro­ jects overseas. By some esti­ mates, 70% of all coal plants being built today involve Chinese state fi nance, but China’s interest in dirty power has cooled as the price of the renewable sort has fallen.

China applied to join an 11­ country Asia­Pacifi c trade deal

Hong Kong held a vote for a new 1,500­member Election Committee, which will choose the city’s next leader. It was the fi rst after reforms that require candidates to be “patriotic”: ie, friendly to China’s Communist Party. The electorate was lim­ ited to fewer than 5,000 peo­ ple. Only one government critic gained a seat.

The results of a snap election in Canada were disappointing for Justin Trudeau, the prime minister. Although Mr Trudeau gained enough votes to govern for a third term, he remains the head of a minority government, with about the same number of seats as when he called the election.

Another Trumpian turn Speaking at the un General Assembly Jair Bolsonaro, Brazil’s president, claimed to represent “a new Brazil, with its credibility recovered before the world”. He also spent part of the speech touting unproven remedies for covid­19 and denouncing lockdown measures.

America’s border patrol began removing the 15,000 Haitian migrants who had gathered at a bridge in Texas after crossing the border from Mexico. Hun­ dreds were deported to Haiti immediately. The migrants had travelled up from South America.

The State Department said that the annual cap on refugees allowed into America will rise from 62,500 to 125,000, fulfi ll­ ing a campaign promise by President Joe Biden.

Mr Biden doubled the number of covid­19 vaccines that America is donating to devel­ oping countries to 1bn, which Pfi zer is providing for no pro­ fi t. Before the announcement António Guterres, the un secretary­general, called the unequal distribution of vac­

The Economist September 25th 2021

cines between rich and poor countries an “obscenity”.

America’s drug regulator ap­ proved booster shots of the Pfi zer vaccine for the over­65s.

Coronavirus data To 6am GMT September 23rd 2021

Weekly confirmed cases by area, m 3 Asia

India said it would resume exporting vaccines. The Serum Institute of India is a big manufacturer of the Astra­ Zeneca shot that is used in many poor countries. India had halted exports when it was hit by a devastating surge of infections in April.

United States Western Europe

1 0 2020

2021

Estimated global excess deaths, m With 95% confidence interval 9.7

Rodrigo Duterte, the president of the Philippines, said people would be held accountable for any unlawful killings in the country’s drug war. His critics say he has encouraged such killings. The International Criminal Court has opened an investigation into his anti­ drug campaign. Mr Duterte did not mention the icc by name, but he appeared to reject its jurisdiction over his country.

Paul Rusesabagina, whose bravery in saving more than 1,200 people during the geno­ cide in Rwanda inspired the fi lm “Hotel Rwanda”, was sentenced to 25 years in jail for terrorism. Observers called the trial a sham. Mr Rusesabagina is a critic of Paul Kagame, Rwanda’s president.

The authorities in Sudan thwarted an attempted coup against a transitional govern­ ment that was itself installed in a coup in 2019. Forces loyal to Sudan’s toppled dictator, Omar al­Bashir, were blamed.

2

Other

15.6

18.3

4.7m official covid-19 deaths

Vaccine doses given per 100 people By country-income group Low income

4

Lower-middle

42

Upper-middle

119

High income

124

Sources: Johns Hopkins University CSSE; Our World in Data; UN; World Bank; The Economist’s excess-deaths model

→ For our latest coverage please visit economist.com/ coronavirus

tions, which in eff ect barred most passengers from Europe, China, India and a handful of other countries, had been criticised as irrational. A negative covid test will still be required, as is the norm near­ ly everywhere.

Abdelaziz Bouteflika, the president of Algeria from 1999 to 2019, died, aged 84. He led the country out of a ruinous civil war, but was ousted in 2019 amid mass protests against his decision to seek a fi fth term.

Australia is also ready to reopen its international fron­ tiers in December, if its national vaccination rate reaches 80%. It sealed its border 18 months ago, more tightly than nearly any other country. Australians will once again be allowed to leave without special permission, and visitors will be allowed in. Thailand, which has been re­opening tourist hotspots, is aiming to reopen Bangkok and other cities in November.

Putting out the welcome mat The White House said re­ strictions on travellers enter­ ing the United States that were introduced at the start of the pandemic would be lifted in November, for people who are fully vaccinated. The restric­

Protests against vaccine man­ dates morphed into three days of rioting in Melbourne. The Australian city has been under various degrees of lockdown since the outbreak began, and subject to laby­ rinthine rules. It also endured an earthquake this week.

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The world this week Business programme asset purchases in November. The central bank also hinted at an interest rate rise next year.

A global shortage of naturalgas supplies continued to convulse markets. Prices have soared in recent weeks, espe­ cially in Europe, following a convergence of adverse fac­ tors, such as booming demand in Asia coinciding with tight stocks of liquefi ed natural gas.

In Europe some governments are stepping in to alleviate the pressure on spiralling house­ hold bills. The International Energy Agency pointed out that Russia’s gas exports to Europe are below their level of 2019, and urged it to “do more to increase gas availability”.

A fowl situation One of the many knock­on eff ects of the turmoil in gas markets was a shortage of carbon dioxide as an industri­ al gas in Britain. A big producer of carbon dioxide had to close its factories because of soaring natural­gas prices, which in turn led to warnings from the chicken industry about a possible paucity of poultry.

Carbon dioxide is used to stun hens for slaughter.

Evergrande, one of China’s biggest property developers, said it had “resolved” the payment of interest on a domestic bond amid a liquid­ ity crisis. The highly indebted company has warned of a default and has reportedly missed interest payments to bank creditors. Investors are watching nervously. The cen­ tral bank has been pumping liquidity into the fi nancial system to shore up confi dence.

The offi cial statement from the Federal Reserve’s meeting this week prepared markets for the strong possibility that it will start to taper its pandemic­

The oecd raised its forecast for inflation in the g20 countries, in part because of higher ship­ ping costs and energy prices.

The average annual infl ation rate for the group is now ex­ pected to be 3.7% this year and 3.9% in 2022. Battling infl ation that is nearing 10%, Brazil’s central bank raised its main interest rate for the fi fth consecutive month.

America’s House of Repre­ sentatives passed a bill that would extend the federal debt ceiling until December next year in order to avoid a govern­ ment shutdown on October 1st this year. Democrats supported the bill and Republicans opposed it. The Senate will now have its say, amid warn­ ings that markets will run out of patience the longer a resolu­ tion is delayed.

Douyin, a Chinese video­ sharing app that has an in­ ternational version called TikTok, said children under 14 in China would be limited to using it for 40 minutes a day. It is the latest move in China to tighten controls over chil­ dren’s online behaviour.

The Economist September 25th 2021 7

Shell struck an agreement to sell its energy assets in Amer­ ica’s Permian Basin to ConocoPhillips for $9.5bn. The Anglo­Dutch energy giant is under pressure to quicken the pace of carbon­emission cuts.

In May a Dutch court ordered the company to hit a specifi c carbon­reduction target by 2030 (it is appealing against the ruling). Shell described the sale of its Permian business as “disciplined stewardship of capital”. Some $7bn in pro­ ceeds have been earmarked for “shareholder distributions”.

Universal Music made a suc­ cessful stockmarket debut on the Euronext exchange in Amsterdam. Its share price jumped by a third on the fi rst day of trading, in Europe’s biggest listing this year. The music company, which counts emi and Motown among its record labels, was spun off by Vivendi, though the French media conglomerate’s control­ ling shareholder, Vincent Bolloré, retains an 18% stake.

Entain, a British gambling company and owner of the Ladbrokes and Coral brands, said it had received a takeover approach, reportedly worth $25bn, from DraftKings, an American fantasy­sports and betting operator.

Mitsubishi ufj Financial Group, Japan’s biggest lender, is to sell its consumer­banking operations in America to us Bancorp in an $8bn deal. mufg expanded into American retail banking when it took full control of Union Bank during the fi nancial crisis in 2008. It will hold on to its corporate­ and investment­banking businesses in America, impor­ tant providers of income.

In a vote of confi dence for the future of offi ce working, Google announced that it would buy the building that serves as its hub in New York for $2.1bn, even though it expects some employees will continue to work remotely.

Return of the salad days In Britain a diff erent indica­ tor—the fi nancial health of Pret A Manger—also suggest­ ed a rosy future for the offi ce.

The coff ee­and­light­meal chain, a favourite of the lunch­ time crowd, has seen its sales rebound in London’s fi nancial district. During the pandemic it closed stores across Britain, but now expects to open 200 new ones by the end of 2023.

However, most of those will not be in city centres, Pret’s traditional habitat, but in suburbs and regional towns.

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Leaders 9

Resurfacing America is at last acting to counter China in Asia. But strengthening military ties is just the start

A

lmost ten years ago President Barack Obama visited Austra­ lia’s parliament to announce a pivot to Asia. “The United States is a Pacifi c power and we are here to stay,” he declared.

This week the White House will echo with similar sentiments, as the leaders of the Quad countries—America, Australia, India and Japan—gather in person for the fi rst time. There will be talk of a “free and open Indo­Pacifi c”, code for facing down an assertive China. The rhetoric will be familiar, but the reaction may not be: this time both friend and foe may actually believe it.

The reason is aukus, an agreement announced last week for America and Britain to supply Australia with at least eight nuc­ lear­powered submarines. The deal has caused waves because of its huge size and because it caused an unseemly row with France, which had a submarine contract of its own with Austra­ lia that has now been abandoned (see Charlemagne).

This belies aukus’s true signifi cance, which is as a step to­ wards a new balance of power in the Pacifi c (see Briefi ng). In a re­ gion where alliances have sometimes seemed fragile, especially during the presidency of Donald Trump, aukus marks a harden­ ing of American attitudes. It is a decades­long commitment and a deep one: America and Britain are transferring some of their most sensitive technology. The three countries’ co­operation promises to embrace cyber capabilities, artifi cial intelligence, quantum computing and more besides.

For this the Biden administration deserves credit. And yet the deal still amounts to only half a strategy. America’s relations with China involve more than a military stand­off . In the search for coexistence, America also needs to combine collaboration over issues like climate change with rules­based economic competi­ tion. The missing parts involve all of South­East Asia, home to some of the countries most vulnerable to Chinese pressure. And here American policy is still struggling.

Lest that seem grudging, fi rst consider aukus’s merits. After Mr Obama’s pivot, America’s friends in Asia suff ered a decade of disappointment. China seized and fortifi ed rocks and reefs in the South China Sea, despite competing claims from countries like the Philippines and Vietnam. Last year its soldiers brawled with India’s on the border. Its warplanes and battleships are con­ stantly ratcheting up pressure on Taiwan, which it routinely hints it might invade. China has punished South Korea for per­ ceived aff ronts with ruinous commercial boycotts. Many Asian countries were beginning to fear that America was too inconsis­ tent and half­hearted to provide a counterweight. aukus off ers a rebuttal. One dimension is military. Amid the sea­lanes and islands that are fl ashpoints with China, nuclear submarines are more versatile than diesel­electric ones. They can gather intelligence, deploy special forces and lurk for months in deep water in the Pacifi c or the Indian Ocean, a threat that Chinese planners will have to factor in. In addition, aukus sets the stage for American forces to operate around Australia, which could serve as a haven from China’s increasingly threat­ ening missiles. The fact that Australia ditched the French deal for the Anglo­American one is evidence of strategic seriousness.

aukus’s other dimension is diplomatic. In recent times Aus­ tralia has borne the brunt of aggressive Chinese tactics, especial­ ly after it called for an investigation into the possibility that co­ vid­19 escaped from a Chinese laboratory. As punishment for this and other grievances, China imposed an unoffi cial embargo on a series of Australian exports. China’s belligerence is typical of the “wolf warrior” diplomacy that has caused consternation across South­East Asia and beyond. By reinforcing Australia, aukus sends a signal to the region that America has no qualms about backing allies that are resisting Chinese bullying.

The question is how America should complement the hard power of aukus with the engagement needed to trade with Chi­ na and to work with it. President Joe Biden signalled his aspira­ tions this week in his speech to the un General Assembly in New York. Making clear that he did not want a cold war with China (although he did not refer to it by name), the president called for “relentless diplomacy” to solve the world’s problems.

On the face of it aukus threatens this aim. And yet in the long run China will join global eff orts to fi ght global warming not as a sop to America, but because it judges them to be in its interest.

Just this week China said it will stop fi nancing coal­fi red power plants abroad (see China section). That was an easy promise, be­ cause such fi nancing had already dwindled—but it was one Chi­ na could have withheld to signal its anger.

Harder will be to strike the balance over commercial competition. Mr Biden’s economic policy towards China sets out to increase na­ tional security by creating jobs at home, with a Maginot line of industrial aims, regulation and government intervention. His Build Back Better World, a mechanism for fi nancing develop­ ment, (which he did name­check at the un) is a pale imitation of China’s Belt and Road Initiative.

Meanwhile China, already the biggest trading partner of most countries in the region, is strengthening its ability to shape the world’s economic and commercial architecture. It is getting its people into important jobs in international institutions. It is ex­ porting its domestic regulatory norms, as with, say, its claim to jurisdiction over international legal disputes. This week it ap­ plied to join the successor to the Trans­Pacifi c Partnership (tpp), a trade pact America championed to counter China and then withdrew from under Donald Trump (see Finance section).

South­East Asia looks to China for its prosperity, so for Amer­ ica to act as a counterbalance calls for deftness and imagination.

One sign of how far America falls short is that even the most ob­ vious path—joining the successor to the tpp—is seen in Wash­ ington as hopelessly ambitious. Almost as worrying, when America is attempting a ferociously complex balancing act, Mr Biden’s diplomacy with France over aukus and his European al­ lies over the pull­out from Afghanistan has been inept.

Celebrate aukus therefore. By signalling to China that its as­ sertiveness has consequences, the pact stands to make South­ East Asia safer. But remember that a deal over nuclear­powered submarines is just a down­payment on a broader China strategy that from here on will become increasingly hard to pull off . n

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Leaders

The Economist September 25th 2021

Germany

The mess Merkel leaves behind As a much-admired chancellor bows out, her successor will face big unresolved problems

O

nly otto von bismarck and Helmut Kohl served longer as Germany’s chancellor than Angela Merkel has. Bismarck forged an empire, and invented Europe’s fi rst public­pension and health­care systems along the way. Kohl oversaw the reuni­ fi cation of East and West Germany and agreed to the replace­ ment of the beloved Deutschmark with the euro.

Mrs Merkel’s achievements are more modest. In her 16 years in the chancellery she has weathered a string of crises, from eco­ nomic to pandemic. Her abilities as a consensus­forger have served her country and Europe well. But her government has ne­ glected too much, nationally and internationally. Germany has got away with it, for now; the country is prosperous and stable.

Yet trouble is brewing. And as Mrs Merkel prepares to leave offi ce when a new government forms after an election this weekend, admiration for her steady leadership should be mixed with frus­ tration at the complacency she has bred.

The list of neglected issues is long (see our Special report).

Germany looks like a purring luxury car; pop the bonnet, though, and the signs of neglect are plain to see. The public sec­ tor has failed to invest adequately or wisely, falling behind its peers in building infrastructure, especially the digital sort. This hampers not just whizzy new tech fi rms, but every other compa­ ny, too. It also makes government less eff ective, a problem exac­ erbated by a failure to hire enough staff . Penny­ pinching is hard­wired into the state. In 2009, on Mrs Merkel’s watch, Germany hobbled itself with a constitutional amendment that makes it illegal to run more than a minute defi cit. With interest rates so low, sensible governments ought to have been borrowing for investment, not fainting at the fi rst spot of red ink.

Germany’s most severe domestic problem is a failure to reform its pension system. Germans are ageing fast, and the baby­boomers will place an even heavier burden on the budget later this decade as they retire. On climate change, Ger­ many has also been sluggish, and still emits more carbon per head than any other big eu country, not helped by Mrs Merkel’s shutdown of Germany’s nuclear industry after the Fukushima disaster in Japan in 2011.

In Europe, where German infl uence matters most, Mrs Mer­ kel’s reluctance to wield it has been especially disappointing.

The eu has not grappled suffi ciently with the weakness of its in­ debted southern members. Only during the pandemic did it create a fi nancial instrument that lets the eu issue jointly guar­ anteed debt, and dispense some of the cash as grants, rather than yet more loans. But this was designed as a one­off . Worse, the “stability” rules that will force countries back into austerity to shrink their stocks of debt are ready to revive, unless amended.

Germany, always the most powerful voice at the eu table, should have argued harder for a more sensible approach.

In eu foreign policy, Germany could and should have been doing more to force a quicker adjustment to a less comfortable new world. China is an increasingly challenging economic and strategic rival, Russia an unpredictable threat and America a dis­ tracted and uncertain ally. Yet Germany has dithered. Despite re­

cent increases, it spends too little on defence. It cosies up to Beij­ ing in the hope of better trading terms. It is giving Vladimir Pu­ tin, Russia’s president, a chokehold over European energy sup­ plies by backing the new Nord Stream 2 gas pipeline which, as it happens, makes landfall in Mrs Merkel’s own constituency. It has fallen to others, principally France’s president, Emmanuel Macron, to make the case for Europe to do more.

Which German candidate, though, could do better than Mrs Merkel? The polls suggest that Germany is set for a messy new parliament, with no single party, or even two, able to form a gov­ ernment. Instead, some sort of ideologically incoherent three­ way coalition is on the cards—one that, by combining high­ spending greens and pro­business liberals, may struggle to agree on anything ambitious.

This is another symptom of Merkelian complacency. Com­ fortable, cautious Germans seem uninterested in serious debate about the future. Crisis­management has become a substitute for initiative. Candidates have no incentive to highlight their country’s looming problems. The result has been one of the least substantive campaigns for decades: all about the horse­race and not about the issues.

Of the possible outcomes, two seem most likely (see Europe section). One is a coalition headed by Mrs Merkel’s party, the Christian Democrats and their Bavarian sister­ party (the cdu/csu), led by Armin Laschet. The other is a coalition led by Olaf Scholz, of the So­ cial Democrats (spd), who is Germany’s fi nance minister. In either case, the coalition would be joined by the Greens and by the pro­business Free Democrats. Both outcomes will have seri­ ous shortcomings, but of the two, The Economist narrowly prefers the second: a “traffi c­light” co­ alition, headed by Mr Scholz.

That is because the cdu/csu, frankly, has blown it. Sixteen years in power has been enough. The party has run out of ideas and drive, as its decision to choose the gaff e­prone and unin­ spiring Mr Laschet for chancellor makes clear. An aff able light­ weight, he has run a dismal campaign, and is predicted to lead his team to its worst result since the second world war. The polls say that Mr Scholz is preferred by twice as many voters.

The tug from the left Are they right, though? There are reasons to hope so, but also plenty to fear. Mr Scholz has been an eff ective fi nance minister.

The German people trust him. He is better placed than a cdu chancellor would be to work with the Greens on climate change.

The problem is that although he belongs to the business­friend­ ly wing of his party, the spd is stuff ed with left­wingers. They may try to drag him further in their direction than the Free Democrats will wear and enterprise can comfortably bear.

The world should expect the coalition talks to last for months, poleaxing European politics while they drag on. And at the end of it all, Germany may well end up with a government that fails to get much done. That is the mess that Mrs Merkel has left behind. n

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Leaders

The Economist September 25th 2021

Energy shortages

Gas puzzlers The first energy squeeze of the green era has important lessons for governments

Y

Sorting this out requires accurately diagnosing what has et another crucial global market has gone from glut to shortage at breakneck speed. Last September in Europe it gone wrong. Governments have not made enough allowance for cost €119 ($139) to buy enough gas to heat the average home for a the intermittency of renewable energy. The world has too little year and the continent’s gas­storage facilities were brimming. nuclear power—a low­carbon energy source that is always on.

Today it costs €738 and stocks are scarce. Even America, which Interventions and subsidies for gas will only make things worse. has an abundance of shale gas, has seen prices more than dou­ Expensive energy angers voters and hurts the poor. But subsidis­ ble—albeit from a much lower level—and could see further in­ ing energy in a squeeze, as Italy is doing, or capping prices, as Britain does, will exacerbate shortages and make politicians’ creases if its winter is a cold one.

The shortage has many causes (see Finance section). A cold commitment to greenery look empty. Governments should use European spring and a hot Asian summer boosted energy de­ the welfare system to support household incomes if they must, mand. Rebounding industrial production has lifted the global while helping energy markets work effi ciently.

The long­term challenge is to smooth out volatility as the appetite for liquefi ed natural gas (lng). Russia has been piping switch to renewables continues. Eventually less gas into European stockpiles. Hawks sus­ cheap battery storage might solve the intermit­ pect it of trying to spook the market and ensure Natural-gas prices Nearest month futures, $ per m Btu tency problem; right now, more gas storage its new Nord Stream 2 pipeline is approved. But 30 would help too. In the meantime tweaks to the it has also faced disruptions, including a fi re at Europe 20 market could improve things. a processing plant in Siberia.

10 In Britain many small energy suppliers Gas has been plugging gaps in power pro­ US 0 which off er, say, one­year fi xed­priced con­ duction from other sources. The wind did not 2020 2021 tracts to consumers, but buy energy at fl oating blow much in Europe this summer, while rates will soon fail (see Britain section). Getting droughts interfered with hydropower output.

The rising price of the permits needed to emit carbon in the eu fi rms selling at fi xed rates to hedge against wholesale price in­ has made coal expensive. So there is little alternative to burning creases should encourage more physical storage of gas. Another idea is to invest more in connecting grids (a link between those gas for electricity as well as for heating homes.

Whereas the world economy’s other bottlenecks—for con­ of Britain and France recently failed) and in lng infrastructure, tainer ships and microchips—have unleashed a capital­expen­ so that arbitrage trades can even out disparities in the global diture boom, investment in fossil fuels is in long­term decline. supply of energy.

Dirty sources of energy should be expensive. But without reli­ American shale can help only so much, because gas markets are imperfectly linked via lng. High prices, when they strike, will able alternatives, price increases boost infl ation, lower living serve mainly to ration limited supply. But it takes big price standards and make environmentalism unpopular (see Bage­ movements to curb demand. If the coming months are chilly, hot). If governments do not manage the energy transition more Europe’s energy may have to become extremely expensive to carefully, then today’s crisis will be the fi rst of many that threat­ en the vital move to a stable climate. n persuade fi rms and households to use less.

The Evergrande crisis

Bail-outs and bedlam Can “common prosperity” lead to financial stability in China?

C

hina’s vast and opaque fi nancial system has long posed a threat to its economy and the world. The agonies of Ever­ grande, a property fi rm with towering debts, are a reminder of how hard it is to manage the risks. The government is attempt­ ing to impose an orderly default on some of its creditors but fac­ es the risk of contagion. The episode also highlights a bigger question of whether President Xi Jinping’s crackdown on busi­ ness will make it even harder to create a reformed fi nancial sys­ tem that is safer, more open and more effi cient.

Part of what makes China’s fi nancial industry daunting is its size. Banking assets have ballooned to about $50trn and they sit alongside a large, Byzantine system of shadow fi nance. Total credit extended to fi rms and households has soared from 178%

of gdp a decade ago to 287% today. The industry suff ers from opacity, a lack of market signals and the erratic application of rules. Property is part of the problem. Families funnel their sav­ ings into apartments rather than casino stockmarkets or state­ run banks. Real­estate developers raise debts in the shadow­ banking system in order to fi nance epic construction booms.

As well as being big, the system is ineffi cient at allocating capital, dragging down growth. Nor is this a problem the world can ignore. Chinese fi rms have issued roughly $1trn of dollar bonds, many of them snapped up by foreign investors. A liquid­ ity crunch in China’s economy would hurt global activity, from commodity markets to the sales of luxury goods.

With an illiquid portfolio of property projects fi nanced by

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14

Leaders

The Economist September 25th 2021

$300bn of liabilities, 80% of them short­term, Evergrande has a huge liquidity mismatch. It has struggled to cope with new gov­ ernment rules designed to curb excessive borrowing in the real­ estate industry but which may now have backfi red.

Bailing out fi nancial fi rms can be distasteful but necessary— just ask the offi cials who rescued aig and Citigroup. China’s gov­ ernment is worried that a default could cause contagion in the bond market and shadow­banking industry and lead to job loss­ es and stalled projects in the property sector, which underpins a fi fth or so of gdp. As we went to press, it was unclear whether the government would blink and rescue the fi rm.

While the dilemma of “too­big­to­fail” is common, many ele­ ments of the Evergrande saga highlight China’s shortcomings.

Evergrande’s statements about whether it has missed interest payments have been confusing, leaving investors in the dark. It is unclear if the formal hierarchy of creditors matters or whether the Communist Party’s view of who counts will override it. The sense of opacity and political machination is part of a pattern.

Huarong, a state­owned fi nancial fi rm suff ering from fraud, hid a $16bn loss for months. It was eventually bailed out in August.

Evergrande shows the importance of deeper fi nancial re­ forms. But what might they look like? Liberal reformers have longed for a clean­up of bad debts, a loosening of controls over prices (including the exchange rate), transparency and indepen­ dent courts that can enforce property rights. Such a system would allocate capital better and be less prey to moral hazard.

Mr Xi’s authoritarian regime helps fi nancial stability in some ways: he sees excessive borrowing as a security risk and may ter­ rify debt­hungry tycoons into being more cautious. The central­ isation of power may make it easier to control crises at sprawling organisations such as Evergrande.

But his broad agenda to reassert control over the economy, information fl ows, courts and regulators cuts against the thrust of fi nancial reform. Why would he want a more open capital ac­ count, which would raise the risk of capital fl ight following po­ litical purges, or private creditors to have stronger rights, or to delegate the role of picking tomorrow’s industries to investors?

Even if Evergrande escapes calamity, the consequences of Mr Xi’s policies for the long­term health of the fi nancial system are only just starting to sink in. n

Multilateral institutions and China

Why Georgieva should go A scandal over data and China has undermined the credibility of the imf’s boss

I

n 2003 the world bank launched a league table that assessed the ease of doing business in diff erent countries around the world. By 2017 Li Keqiang, China’s prime minister, grumbled that his country was lagging behind its peers. At his urging, offi cials began freeing entrepreneurs from red tape—and crimson ink.

They cut fees, streamlined approvals, and began to use electron­ ic seals instead of the traditional ink stamp on many documents.

China’s progress illustrates the power of the bank’s Doing Business rankings. Leaders have used them to motivate and monitor regulatory reforms, and like to boast about their coun­ try’s progress. The imf cited the rankings last year in arguing for lending to Jordan. The data help guide investors. And they have informed 676 of the World Bank’s own projects (worth $15.5bn) in the past decade, according to an as­yet­unpublished internal evaluation.

But with that profi le came pressure. A new investigation has found that bank staff improp­ erly altered the scores of China and three other countries. They wanted to spare China an em­ barrassing fall in the rankings in 2017, just as its reforms were gathering steam. According to the investigation, the China tweaks were carried out at the behest of the bank’s then president, Jim Yong Kim, and his second­in­ command, Kristalina Georgieva, who is now head of the imf.

In a statement, Ms Georgieva has said she disagrees “funda­ mentally” with the fi ndings and interpretation. In a meeting with imf staff , she said she only asked bank researchers to tri­ ple­check the data. But the investigators found that she and the team explored a change in the bank’s method (ie, including only one city per country) to engineer a better result. And, according to the bank’s own review, the tweaks that were fi nally imple­ mented introduced errors rather than removing them.

In her defence, it was her boss who initiated the extra tyre­

kicking. She had the higher motive of strengthening multilater­ alism. Scope for discretion had crept into the Doing Business in­ dicators as they grew more elaborate over time. And a senior re­ searcher assured her he could “live” with the revised report, al­ though it is likely that neither he nor she knew exactly what tweaks had been made.

It is also true that institutions like the bank suff er from an in­ herent tension between their diplomatic duties and their scien­ tifi c aspirations, as Paul Romer, a former chief economist of the bank, has pointed out. Reconciling the two is always diffi cult.

Once the Doing Business rankings became so politically impor­ tant to the bank’s member countries, it should have brought in outside institutions, like think­tanks or univer­ sities, to help oversee them.

But although Ms Georgieva deserves sympa­ thy, the episode does not sit easily with her pre­ sent role at the imf. The fund has an infl uential research department of its own. It is also the custodian of data standards for the world’s macroeconomic statistics. The head of the imf must hold the ring while two of its biggest shareholders, America and China, confront each other in a new era of geopolitical rivalry. Critics of multilateralism are already citing this aff air as evidence that international bodies cannot stand up to China. The next time the imf tries to referee a cur­ rency dispute, or helps reschedule the debt of a country that has borrowed from China, the fund’s critics are sure to cite this in­ vestigation to undermine the institution’s credibility.

That is why Ms Georgieva, an esteemed servant of several in­ ternational institutions, should resign. After China’s embarrass­ ment was averted, she thanked a senior researcher for “doing his bit for multilateralism”. Now she too should do her bit for multi­ lateralism by falling on her sword. n

012

Executive focus

15

The mission of the Operations Division of the International Staff is to prepare NATO for the defence of Alliance territory, to respond to crises at home and abroad, and to strengthen the capabilities of partners. The Operations Division advances the core tasks of the Alliance (Collective Defence, Crisis Management, Cooperative Security) by providing political oversight of NATO’s crisis management activities and operations, situational awareness, advance planning, well-exercised and executed crisis response, and outcome-oriented defence and related security cooperation programmes.

The Assistant Secretary General (ASG) reports directly to the NATO Secretary General. S/he is the Secretary General’s primary advisor on crisis response operations. S/he is a member of the Secretary General’s senior management team and will be responsible for managing the Operations Division (approximately 75 staff), and have oversight of the NATO Situation Centre. S/he will be supported in this task by a Deputy, and two Directors.

There are eight ASGs, all of whom report to the NATO Secretary General and are also accountable to the North Atlantic Council. As a member of the Secretary General’s senior management team, each ASG is also expected to contribute to overall policy development and delivery, including in areas beyond their direct set of responsibilities.

For additional information and to apply please visit NATO’s Recruitment website (https://www.nato.int/cps/en/natolive/recruit-wide.htm).

The closing date for applications is the 7th of November at 23:59 CET Brussels Time.

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16

Letters When is it a war?

Members of Congress may “regret their votes” on the second Gulf war, but faulty intelligence was not to blame (“Wauthorisation”, September 4th). The admittedly fl awed estimate on weapons of mass destruction in Iraq infl uenced few votes. The Senate voted 77­23 to authorise the use of force. Only six senators actu­ ally read the estimate and another dozen were briefed.

The key factor was Democrats who did not want to vote against an ultimately success­ ful war, as they had in 1990. mark lowenthal Assistant director of central intelligence for analysis, 2002­05 Reston, Virginia

You correctly concluded that there should be greater congressional oversight over the conduct of war. In fact it is not as diffi cult to “undeclare war” as you think. The “wars” against al­Qaeda and Iraq were never actually declared by Congress; it merely authorised the use of force. As Oona Hathaway has recently argued, the solution should be for Congress to include sunset clauses in any future authori­ sation, which ought also to comply with international law.

All use of force should be brought within the rule of law.

War powers are assumed by the American president and other powerful executive branches around the world with timid or no oversight from legislative or judicial branches. We should be asking more questions when poli­ ticians claim to be “at war”. andrew clapham Professor of international law Graduate Institute of International and Development Studies (iheid) Geneva Speed dial number 3 Joe Biden’s fi rst telephone call as president to a foreign leader was to Justin Trudeau, not Boris Johnson (“Yet another squabble”, August 28th). In­ deed, Mr Johnson was not even

The Economist September 25th 2021

number two. That honour went to Andrés Manuel López Obrador. nicholas coghlan Salt Spring Island, Canada Pakistan and the Taliban Maleeha Lodhi cherry­picked her facts when lecturing Amer­ ica on how to deal with the Taliban (By invitation, digital editions, September 9th). We may not expect a former Pakistani diplomat to discuss the role of her country’s intelligence services in groom­ ing the Taliban or in harbour­ ing Osama bin Laden. Yet since Ms Lodhi mentioned how furious Pakistanis were over the American operation that took bin Laden out, she might also have shown some empa­ thy with the American people, who received a measure of closure (and not only Pakistani offi cials, who “were privately relieved”).

Perhaps American involve­ ment in Afghanistan made Pakistani offi cials nervous, not only because it hampered their own designs on their un­ fortunate neighbour, but also because they feared they might be next to be targeted by Amer­ ican military might. Pakistan is suspected of supplying nuclear secrets (or worse) to regimes nobody would want to see with atom bombs. avedis hadjian Venice

Legislate, don’t adjudicate Regarding the anti­abortion law in Texas, you quoted Jus­ tice Sonia Sotomayor on the Supreme Court, who decried the Texas state legislature for undermining abortion­rights rulings (“Roe on the ropes,” September 4th). But the core problem is with Roe v Wade, the court’s ruling from 1973. By stepping in to legalise abor­ tion, that decision warps the checks and balances at the constitution’s very heart, shifting policymaking authority from the most politi­ cally accountable branch of government, Congress, to the least, the Supreme Court.

Remember Thomas Sowell’s

more general caution in “Knowledge and Decisions”, all the more looming 40 years on: the Supreme Court “neither obeyed a constitutional compulsion nor fi lled an institutional vacuum; it has chosen to supersede other decision­making processes.”

So when you say in a fol­ low­on article that the court’s decision not to intervene in Texas is “bad…for the rule of law” (“Courting trouble”, Sep­ tember 11th), I’d respond that the court, precisely in Roe, long beat Texas to the punch. dan brendel Alexandria, Virginia Fake/not fake Social­media companies can help prevent the viral spread of conspiracy theories, you argue (“It’s all connected, man”, September 4th). Recall that Facebook spent months tagging discussion of the covid­19­origin lab­leak hypothesis as “false” and “debunked”; it is now taken seriously and could be correct.

YouTube and Twitter have similar egregious examples. carl schwab Arlington, Virginia

Animal philosopher More needs to be said about Aristotle’s contribution to the science of life (Biology brief, “On the origin of ‘species’”, August 28th). Around a quarter of the extant Aristotelian corpus is devoted to the fi rst systematic, scientifi c investi­ gation of the animal kingdom.

Many of the 18th­ and 19th­ century biologists discussed in your essay were astounded at his accomplishments.

On Aristotle’s “History of Animals”, Georges Cuvier wrote that “it is diffi cult to understand how the author could have obtained, from personal observations, so many generalisations and aphorisms whose accuracy is perfect.” In a letter to William Ogle, Charles Darwin noted that “Linnaeus and Cuvier have been my two gods, though in very diff erent ways, but they were mere schoolboys to old

Aristotle”. And Richard Owen, perhaps the greatest compara­ tive anatomist of the 19th century, declared in 1837 that zoological science sprang from Aristotle’s labours: “we may almost say, like Minerva from the head of Jove, in a state of noble and splendid maturity.”

As someone who has spent decades translating these works, I can attest that none of the praise of Aristotle as a zoologist is overstated. james lennox Emeritus professor of history and philosophy of science University of Pittsburgh Art detectives Ernst van de Wetering had a brilliant precursor who could also spot a Rembrandt (Obitu­ ary, August 28th). Hubert von Sonnenburg, a paintings con­ servator at the New York Metropolitan Museum of Art, carefully examined all the works attributed to Rembrandt in museums around the world.

It took him 45 minutes to assess a painting. He came to similar conclusions to those of Van de Wetering and wrote a book about his fi ndings, but lost the manuscript in a New York cab. He later published another book on the subject, “Rembrandt/Not Rembrandt”. lucien karhausen Brussels

Muddled thinking In considering whether to expect their employees to work while on holiday (Bartleby, August 21st), bosses might also like to refl ect on the probable eff ects of 30­degree­ plus heat, several beers at lunchtime and general “holiday brain” on people's decision­making abilities. I know mine would not have been very trustworthy. sylvia rose Totnes, Devon

Letters are welcome and should be addressed to the Editor at The Economist, The Adelphi Building, 1-11 John Adam Street, London wc2n 6ht Email: letters@economist.com More letters are available at: Economist.com/letters

012

Briefing The new geopolitics of Asia

Enter AUKUS

HO NG KO NG, PARIS AND WASHINGTON, DC

A major submarine deal underscores how the new theatre for great-power competition is maritime, playing out across the Indo-Pacific

I

n the early 19th century, Chinese and Indian labourers in what is now Western Australia noted that the sweet­smelling logs being burned in the colony’s fi res were sandalwood—a valuable commodity in their native lands. By the 1870s Australian sandalwood was one of the colony’s major exports, shipped from Perth to Bombay, Singapore, Hong Kong and Shanghai, where it was particularly prized.

Trade between the nations continued from then on, with Australia providing a range of raw materials, but never at a par­ ticularly impressive rate. Then China’s market reforms took off in the 1990s, and with them an unprecedented appetite for coal and ores of all sorts. By the 2010s Chi­ na was Australia’s biggest trading partner, a hungry buyer not just of bulk materials but of high­end seafood and beefy shiraz.

For a long time Australia’s political es­ tablishment ducked the need for a proper debate on the risks of basing the country’s prosperity on trade with autocratic China and its security on an alliance with Ameri­ ca. In the past couple of years Chinese high­handedness has made that contradic­

tion harder to ignore or to tolerate.

Late last year China laid out a set of 14 grievances that was striking in its scope, animosity and hypocrisy. It included Aus­ tralia passing a law against foreign inter­ ference in domestic politics, blaming Chi­ na for cyber­attacks and suggesting that Chinese journalists might be state agents.

Australian lobster, wine, barley, coal, sugar and timber suddenly faced an unoffi cial Chinese trade embargo and piled up un­ sold. The case for viewing China as a long­ term challenge to national interests was rested.

One result of this is a strong possibility that in the 2030s there will be new boats plying the old sandalwood routes north from Perth: a fl eet of at least eight Austra­ lian nuclear submarines based on either America’s Virginia class or Britain’s Astute class, built with technology from some combination of the two countries’ defence contractors. These submarines are the most dramatic component of an agree­ ment between America, Australia and Brit­ ain called aukus which the three nations announced on September 15th. Negotiated

The Economist September 25th 2021

in the strictest of secrecy over a period of months, it envisages a wide range of dip­ lomatic and technological collaboration, from cyber­security to artifi cial intelli­ gence. But given that the three countries already collaborate closely in many areas— they make up, with Canada and New Zea­ land, the “Five Eyes” intelligence­sharing pact—it is the novelty of Australia’s nuc­ lear submarines that has garnered the most attention. And quite rightly.

As an arms deal it is big; at least eight nuclear submarines suggests a contract value in the tens of billions of dollars. As a strategic shift it is bigger. The pact is Amer­ ica’s most dramatic and determined move yet to counter what it and others in the In­ do­Pacifi c region see as a growing threat from China. As Stephen Walt of Harvard University writes, “it is a move designed to discourage or thwart any future Chinese bid for regional hegemony.”

The greatest immediate outrage, though, came not from China (see Cha­ guan) but from the opposite end of Eurasia.

Although President Joe Biden stressed that aukus was about “investing in our greatest source of strength—our alliances”, Ameri­ ca’s oldest ally and Britain’s physically closest one, France, had been stabbed in the back, as Jean­Yves Le Drian, its foreign minister, put it (see Charlemagne).

In 2016 Australia signed a contract for 12 diesel­electric “Shortfi n Barracuda” sub­ marines with Naval Group, a company in which the French state has a majority stake. On the very day of the aukus an­

17

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18

Briefing The new geopolitics of Asia

The Economist September 25th 2021

nouncement, according to the French de­ fence ministry, Australia notifi ed France that it was satisfi ed with the progress that the programme was making. After the an­ nouncement the Barracuda was dead in the water. On September 17th President Em­ manuel Macron took the extreme measure of withdrawing France’s ambassadors from Washington and Canberra (though not London, a sleight within a sleight con­ veying France’s belief that Britain, as a tag­ along in the troika, was beneath disdain).

France, the European Union’s leading military power, will see its suspicion that the English­speaking allies are never really to be trusted as vindicated. The arguments for strategic autonomy engendered by that suspicion will now be made again, and perhaps acted on, both with respect to policy in the Indo­Pacifi c—where France has numerous territories, nearly 2m citi­ zens and 7,000 troops—and elsewhere.

Placating the French will in part be a mat­ ter of accommodating those arguments. In a phone call on September 22nd during which Mr Biden and Mr Macron “agreed that the situation would have benefi ted from open consultations among allies”, America recognised “the importance of a stronger and more capable European de­

fence, that contributes positively to trans­ atlantic and global security and is comple­ mentary to nato”. France’s ambassador will return to Washington next week, but the lessons it has drawn will linger.

And as one door closes another opens.

France and India joined again in a three­ day naval exercise earlier this year; Mr Macron and Narendra Modi, India’s prime minister, spoke this week. India will be de­ lighted by the focused attention of a big arms supplier which is sympathetic to its notion of non­alignment. It would love some help with nuclear submarines, whether from France or aukus. hmas Perfidious Albion The importance of nuclear submarines lies in the projection of force. Diesel­electric submarines like the Shortfi n Barracuda can be very quiet indeed when in electric mode. As such they would be well suited to protecting Australia’s coastal waters—bet­ ter in some ways than nuclear­powered boats, which can never completely silence the hum of their reactors’ plumbing. In deeper seas and when travelling greater distances, though, nuclear subs can hide between sound­muffl ing layers of warm and cold water and make use of their far

1,000 km

MONGOLIA

N. KOREA SOUTH KOREA

Beijing

CHINA Shanghai

BANGLADESH NEPAL

Okinawa

Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

* PACIFIC OCEAN

TAIWAN

LAOS

INDIA Bay of Bengal

73

VIETNAM

MYANMAR

JAPAN

US naval base

Senkaku/ Diaoyu Is.

Hong Kong

Kolkata

ASEAN members

RUSSIA

THAILAND CAM.

South China Sea

PHILIPPINES Guam

77 11 78 14

SRI LANKA

Nuclear submarines can stay “on station” for 81 days, compared with 23 days for typical conventional subs

BRUNEI M AL AYS I A

SINGAPORE I N D O N E S I A

Submarine deployments to marine chokepoints

83 28

81 23 Days 84 31

Estimated days “on station” By submarine type Nuclear

Conventional

AUSTRALIA INDIAN OCEAN

Brisbane Stirling naval base

Perth Sydney

China’s view of regional security United States:

Allies

Source: Centre for Strategic and Budgetary Assessment (CSBA)

Long-standing partners

Emerging partners *No CSBA estimate due to unrealistic distance

NEW ZEALAND

greater range and sustained speed.

A conventional sub dispatched to patrol the contested waters of the South China Sea from hmas Stirling, the naval base in Perth which is home to Australia’s subma­ rine fl eet, would be able to stay on station for just two weeks before returning for re­ fuelling and upkeep, according to calcula­ tions by the Centre for Strategic and Bud­ getary Assessments, an American think­ tank. A nuclear sub could lurk for as long as its crew could be fed (see map). Its mis­ sions there could include intelligence­ gathering and disgorging special forces as well as holding Chinese surface ships and submarines at risk.

To go from a diesel­electric fl eet to a nu­ clear fl eet is thus a change of strategy, not just of propulsion. It provides a way to pro­ ject power from the shipping lanes which feed the all­important Malacca Strait to the waters off Taiwan. Add on the capacity to launch much longer­range missiles—a submarine could deliver missiles to Chi­ na’s mainland while sitting to the east of the Philippines—and the country has a greatly expanded off ensive capacity.

The new boats’ specifi cations and exact provenance are to be defi ned during an 18­ month scoping period. If, over the years that it takes for them to arrive, Australia does in fact lease one or two American Vir­ ginia­class subs to train crews and fi ll the gap, that would further strengthen its ties with America’s navy. It would also spur the development of relevant infrastructure at hmas Stirling and possibly also at Darwin on the north coast and Brisbane on the east, infrastructure visiting American boats could use too. A day after the aukus news came the announcement of a sub­ stantial increase in America’s military presence in and around Australia.

Responding to the aukus announce­ ment on September 16th, China’s “wolf­ warrior” government spokesman, Zhao Li­ jian, said the submarine co­operation “se­ riously undermined regional peace and stability, intensifi ed an arms race and un­ dermined international non­proliferation eff orts”. While the source needs to be taken into account, the deal does raise potential proliferation issues.

The fact that a submarine is nuclear­po­ wered does not mean that it must carry nu­ clear missiles (and Mr Biden stressed that Australia’s would not). There are currently no American nuclear warheads capable of sitting on the sort of missiles that can be fi red from the Virginia or Astute boats and thus, probably, the new Australian class.

But if the new submarines use reactors like America’s and Britain’s, Australia will need the fuel those reactors use: highly enriched uranium (heu) of the sort that is used to make bombs. Australia would not neces­ sarily need to develop enrichment tech­ nology itself. Its possession of heu provid­

012

The Economist September 25th 2021

300 km

Taipei

CHI NA

TAIWAN

Hanoi China/Taiwan “nine-dash line”

Hainan

PACIFIC OCEAN

Paracel Is.

VIETNAM

South China Sea

Spratly Is.

PHILIPPINES Manila Subic Bay

Whitsun Reef

Sea depth Metres BRUNEI

Bandar Seri Begawan

MALAYSIA INDONESIA

0 200 2,000 4,000 6,000

ed by others would still make it unique among the non­nuclear­weapons states signatory to the Nuclear Non­Proliferation Treaty (npt).

Unique, but not in breach: the npt al­ lows such uses. If Australia and the Inter­ national Atomic Energy Agency, which po­ lices the npt, found a way for the heu to be used on submarines and still kept under iaea safeguards, they would be setting a precedent which might strengthen the treaty a bit. If they do not, the precedent could point the other way: if safeguards are not the norm, exploiting heu for subma­ rine propulsion might become cover for making bombs. South Korea recently showed it can launch a ballistic missile from a submarine—a capability most of the nuclear­weapons states have, but which no other non­nuclear­weapon state has ever seen a need for. Were it to start de­ veloping nuclear power for its submarines without iaea safeguards, its motives would come under very close scrutiny.

If Australia’s strategic stance is changed by the deal, so is America’s. Since the sec­ ond world war it has projected power across the region via what Bruce Cumings, a historian, calls an “archipelago of em­ pire”—island bases from Hawaii in the east to Guam, Okinawa in Japan and, in the In­ dian Ocean, Diego Garcia, leased from Brit­ ain without the consent of its natives. In Australia, America has now, in eff ect, a beefed­up continent­sized base for its own operations as well as a reinvigorated ally.

This should slow—but not yet reverse— the shift in the maritime balance of power between America and China, which is sus­ taining spectacular levels of shipbuilding and missile­making. It also points to an emerging facet of security co­operation under Mr Biden; coalitions of the willing defi ned by what the counterparts want and are able to off er. Strong doses of pragma­ tism are likely to be features of the new, of­

Briefing The new geopolitics of Asia

ten transactional, arrangements.

One area where this should be seen is the Quad, a 14­year­old diplomatic group­ ing of America, Australia, India and Japan.

The idea of a “free and open Indo­Pacifi c” originated with Japan, but has been taken up with gusto by the Quad’s members. The Quad is broadly welcome in the region, be­ cause it gives smaller Asian states options other than Chinese ones. Beyond phrase­ making, though, it has not really achieved all that much. It has certainly not stopped China from threatening its members.

Japan faces daily challenges from Chi­ nese aircraft and vessels around its unin­ habited Senkaku Islands, which China claims as its own Diaoyu Islands. Not long ago, a high­altitude brawl between Indian and Chinese troops in the Himalayas turned deadly. In order to deal with over­ land threats, C. Raja Mohan of the National University of Singapore recently wrote in Foreign Policy, a magazine, India feels the need to protect its maritime fl ank. Having been shaken by America’s precipitous withdrawal from Afghanistan, it sees in aukus welcome evidence of long­term American commitment.

On September 24th the Quad’s four heads of government will meet for the fi rst time in person, in Washington, dc—a to­ ken of revived intent and energy. There has been talk of India joining the other three members’ “Blue Dot” initiative, which sets standards for transparency and environ­ mental impact in infrastructure projects, and is intended to provide developing countries with an alluring alternative to China’s Belt and Road Initiative. A vaccina­ tion programme unveiled at a virtual sum­ mit of the Quad in March aimed to get jabs into Asian arms, though not as yet to much eff ect.

How the Quad will work with aukus re­ mains to be seen. It is possible that Japan, Friends, neighbours and others Trade and economic groupings USMCA

ASEAN Brunei Malaysia Singapore Vietnam

CPTTP Australia, Chile, Japan, New Zealand, Peru

Canada Mexico United States

Cambodia Indonesia Laos Myanmar Philippines Thailand

Five Eyes Canada, New Zealand

Britain

Security groupings

AUKUS Source: The Economist

Australia United States QUAD India Japan

which gave swift endorsement to the pact, might seek to join it; it is America’s most important East Asian ally, it has done much to upgrade its security relationship with Australia and it has submarine exper­ tise (though not of the nuclear sort). Per­ haps more likely would be a “Quad+2” dia­ logue which, by bringing in Britain and France, allowed aukus, the Quad and the French to align their activities.

On a strait path Another country which was quick to en­ dorse aukus was Taiwan, which faces near­constant bullying from China—in one operation in early September, China sent 19 military aircraft, including nuclear­ capable bombers, into Taiwan’s “air de­ fence identifi cation zone”. Sam Roggeveen of the Lowy Institute, a think­tank in Syd­ ney, argues that Australia’s new capabili­ ties must surely lead to “heightened expec­ tations that [it] will take America’s side in any dispute with China [over Taiwan]”.

The other major grouping in the region is asean, a ten­member organisation which includes all the countries with coasts on the South China Sea other than China and Taiwan. It is in that sea that Chi­ na’s maritime expansionism is most sharply felt. Some four years ago it com­ pleted a massive terraforming programme there, destroying coral reefs to make way for huge artifi cial islands housing runways and fortifi cations.

That gave China forward bases from which to apply force to all the parts of the sea within the “nine­dash line” it asserts as the edge of its domain (see map). That such staging posts are necessary is a telling indi­ cation of just how far from China, and in­ ternational norms, the line sits. Gregory Poling of the Centre of Strategic and Inter­ national Studies, another think­tank in Washington, thinks China hopes they would prove strong enough to deny Amer­ ican air and surface forces access to the South China Sea in the event of confl ict. It is worth noting that such denial, even if achieved, would not necessarily apply to submarines, which could still gain access to the sea’s surprisingly deep core.

China’s intimidation of other countries which claim parts of the sea, including Brunei, Malaysia, the Philippines and Viet­ nam, has largely been carried out through “grey zone” activities by the coastguard, survey vessels and fl eets of Chinese fi shing vessels forming “maritime militias”. These activities can be highly eff ective. They had brought exploration for oil and gas in the waters of Vietnam and the Philippines to a halt—China demands joint exploration both out of resource hunger and as a way to force acknowledgment of its claims.

Bill Hayton, the author of “The South China Sea: The Struggle for Power in Asia”, argues that China’s aim is to establish a Si­

19

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Briefing The new geopolitics of Asia

no­centric world in which client or satel­ lite states in an expanding sphere of infl u­ ence become compliant. But a penchant for the bully’s stick and a sparing approach to the ingratiator’s carrot has undercut its strategy.

When, in 2016, a tribunal in The Hague ruled that China’s claims in the South Chi­ na Sea were without merit, the new presi­ dent of the Philippines, Rodrigo Duterte, made it clear he would ignore the ruling— despite the fact that it was a fi nding in his country’s favour in a case his country had brought to the court. He expected an in­ vestment bonanza in return.

It did not transpire. Now Mr Duterte has tilted back towards America on the pro­ mise of covid­19 vaccines (Filipinos do not trust Chinese­made ones). The Philippines has renewed its protests over China’s claims in the sea. Last March 220 Chinese fi shing vessels showed up at the Whitsun Reef, which is within both the nine­dash line and the Philippines’ 200­nautical­ mile “exclusive economic zone”. In re­ sponse the country’s foreign secretary, Te­ odoro “Teddy Boy” Locsin, tweeted: “Chi­ na, my friend, how politely can I put it? Let me see…O…GET THE FUCK OUT.” Vietnam and Malaysia have now fol­ lowed the Philippines in lodging objec­ tions to China’s territorial claims with the un. Mr Hayton contends that, overall, Chi­ na’s insular terraforming and fl agrant bul­ lying have left it with less infl uence than it had to begin with.

The Biden administration senses an opening through which it can simulta­ neously appeal to asean’s members and reshape the role some countries in the group play in regional security. In their vis­ its to the region Anthony Blinken, the sec­ retary of state, and Lloyd Austin, the de­ fence secretary, have not demanded that asean side with America against China

The Economist September 25th 2021

Commercial power Trade with East Asia and the Pacific*, $trn 1.0 China Imports

0.8

Exports

0.6

United States 0.4 Imports

0.2

Exports

0 2000

05

Source: World Bank

10

15

19

*Excluding China

while spouting bombast about democracy and freedom in the manner of Mike Pom­ peo, Mr Blinken’s predecessor under Presi­ dent Donald Trump. They place new em­ phasis on practical, as opposed to geopolit­ ical, beefs with China: the damage Chinese coercion is infl icting on the rights of Viet­ namese gas drillers or livelihoods of Filipi­ no fi shers. They do not explicitly ask asean countries to take sides and, as Derek Grossman of the rand Corporation, an American think­tank, notes, American of­ fi cials speak reassuringly of “guardrails” around America’s fi erce competition with China which will keep bystanders safe should things turn ugly.

Some members of asean, such as the Philippines and Singapore, openly wel­ comed the advent of aukus. As one hard­ nosed Singaporean strategist puts it, any­ thing that maintains a balance of power in the region is desirable. Vietnam is likely to approve, too, if more quietly.

Others are more reticent. They realise that aukus is a challenge to the hallowed notion of “asean centrality”, a totemic rhe­ torical device which seeks to have others acknowledge its relevance and to keep great­power struggles away from its turf.

The offi ce of the new Malaysian prime minister, Ismail Sabri Yaakob, said aukus would “provoke other powers to act more aggressively in the region”. (Given that Chi­ na recently fl ew 16 military aircraft through Malaysian air space the base level of aggression is already pretty high.) It called, not for the fi rst time, for asean to be a “zone of peace, freedom and neutrality” or zopfan, a call that the hard­nosed Sin­ gaporean strategist says is both backward­ looking and bordering on the delusional.

In general, Mr Biden is making good use of the fact that, where China has only one proper ally (Pakistan) and few real friends, America still boasts formidable convening powers in the region. There is one signal way, though, in which America is failing to use its power: trade.

America’s abdication of economic lead­ ership was announced on Mr Trump’s fi rst

day in offi ce, when he pulled America out of negotiations to establish the Trans­Pa­ cifi c Partnership (tpp), at the time an am­ bitious 12­country free­trade initiative with detailed provisions and standards co­ vering tricky issues such as intellectual property and state support for industry.

The negotiations, which included four asean nations, had been the central non­ military pillar of President Barack Obama’s “pivot to Asia”; as his vice­president, Mr Biden was a cheerleader for it. But congres­ sional antipathy rules out any chance of him re­engaging with the idea.

This highlights two deep problems for America. One is that Mr Trump’s term in offi ce undercut old assumptions about America’s reliability as an ally. Mr Biden is about as well known a quantity as it is pos­ sible to imagine in foreign­policy circles.

But there is truly no way of knowing what might follow him. The other is that when it comes to trade, especially in Asia, where China has grown to great dominance (see chart), America is fi ghting with its hands behind its back.

On tech America can do things. You can imagine America fi nding ways to encour­ age Japan and India to work more closely with aukus on ai, quantum computing and other facets of modern security. Add South Korea and Taiwan, and you have an array of tech nations which would be in a powerful position to set open standards for next­generation technologies, off ering countries an alternative to Chinese stan­ dards and thereby possibly marginalising it. Not so on trade more broadly.

A hole in the strategy Though America’s withdrawal from tpp was a huge blow to the others involved in the process, in 2018 eff orts led by Australia and Japan helped bring a new version of the deal, known as the Comprehensive and Progressive Agreement for Trans­Pacifi c Partnership (cptpp), into being.

On September 16th, a day after the aukus announcement, China, which has struck bilateral agreements with many of its neighbours, asked to join the cptpp (see Finance section). This may be intended more as a way of making mischief than as a serious attempt to join. (Taiwan responded by applying, too.) The reason that China pushed negotiations for a much less strin­ gent 15­country trade deal, the Regional Comprehensive Economic Partnership, is that it has none of the cptpp’s require­ ments on labour laws and checks on state­ owned enterprises, strictures that China would be hard put to live within.

But China’s gambit makes stark the fact that America is unable to match it. And its lack of economic leadership remains, in the words of Bilahari Kausikan, Singa­ pore’s former top diplomat, “the big hole in American strategy”. n

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United States

The Economist September 25th 2021

Housing

Build, baby, build

BE RKE LEY

Ending single-family zoning is an important step towards mending California

T

he golden mean in California’s one­ party politics can be caricatured, only a little unfairly, as the art of sounding pro­ gressive while acting conservative. Take housing. Homeowners may recognise that housing aff ordability and homelessness are acute social problems. But the obvious remedy—more construction—seems un­ appealing, because it might hurt property values and spoil neighbourhoods. Thus the progressive­conservative position is to in­ sist on building housing at below­market rates, which sounds compassionate but, in practice, means that little new housing ac­ tually gets built. This is why it is so encour­ aging that two days after Gavin Newsom handily defeated a Republican attempt to boot him from offi ce, the governor signed two contentious measures, sb9 and sb10, aimed at increasing housing supply.

In the past decade median home values have surged 165% in both Los Angeles and San Francisco Counties to $830,000 and $1.85m, respectively. Median home prices nationwide increased by 64% to about

$375,000. Before covid­19, San Francisco was the costliest city for renters; New York now barely claims the top spot. Califor­ nians make up 12% of America’s popula­ tion, but 28% of its homeless.

The more controversial law of the two is sb9, which ends single­family zoning in the state. This means Californians will now be able to convert their houses into up to four units, depending on the size of their plot. California isn’t the fi rst place to elim­ inate single­family zoning. Minneapolis and Oregon did so in 2019. As for sb10, that → Also in this section 22 To boost, or not to boost 23 Schools and spreading covid­19 24 University politics 24 The George Floyd eff ect

25 Mississippi’s last abortion clinic 26 Lexington: Chuck Schumer

will make it easier for cities to build up to ten apartments on land currently set aside for single­family homes near busy public­ transport corridors.

California has built fewer than 100,000 homes a year, on average, in the past de­ cade. Permits issued for new construction plummeted in 2007 when the housing bubble burst, and have not yet returned to their previous level. Estimates for the number of homes the state needs to build just to keep up with population growth va­ ry wildly. The state thinks it needs to build 1.8m homes by 2025; McKinsey, a consul­ tancy, reckons it will need 3.5m. Ben Met­ calf of the Terner Centre for Housing Inno­ vation at the University of California, Berkeley, says the magic number is proba­ bly somewhere between the two.

If California so badly needs more hous­ ing, why is ending single­family zoning controversial? For a long time, making it in America meant having a house in the sub­ urbs with the white picket fence, says Yo­ nah Freemark, a researcher at the Urban Institute, a think­tank. Single­family homes are also ubiquitous. As of 2019, they made up 61% of all housing units in the country. San Francisco is America’s sec­ ond­densest city after New York. Yet 51% of residential land in the county is zoned for single­family homes (see map overleaf).

Although single­family homes are everywhere, they were not initially meant for everyone. Today the Bay Area is a lab­

21

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United States

oratory for some of the country’s most pro­ gressive policies. Yet in 1916, Berkeley was among the fi rst places to enact single­fam­ ily zoning. Banning apartments and com­ mercial buildings was a way to exclude poor Americans from desirable neighbour­ hoods. At best, the practice was snobbish.

At worst, it helped segregate cities by class and race. After the Supreme Court struck down explicitly racial zoning ordinances in 1917, zoning by land­use became wide­ spread. Metal gates still ring Berkeley’s up­ market Claremont neighbourhood today; it was one of the fi rst places zoned for sin­ gle­family homes.

The new laws will bring incremental change rather than revolution. An analysis from the Terner Centre found that sb9 could make new development possible on 5.4% of existing single­family lots. That may sound very little, but it would still create about 700,000 new units, 40% more than would otherwise have been devel­ oped. The units will also probably be built slowly, since the law depends on Califor­ nians voluntarily renovating their homes.

Even so, sb9 and sb10 have incensed the state’s vocal nimby constituency. nimbys and their yimby nemeses have become tri­ bal factions in California politics. Groups seemingly removed from housing policy scream their opinions. The aids Health­ care Foundation runs a housing advocacy outfi t that took out a full­page ad in the Sacramento Bee beseeching Mr Newsom not to sign the bills.

Among the staunchest opponents of sb9 are those who liken the law to a power grab by the state that takes planning deci­ sions away from cities. Some local offi cials in southern California talk about Sacra­ mento, the state capital, with a prickly dis­ dain usually reserved for faraway Wash­ ington, dc. Bill Brand, the mayor of Redon­ do Beach, a small city south of Los Angeles, has proposed an amendment to Califor­ nia’s constitution that would reassert local control over land­use decisions.

Opponents also argue that the law will hasten gentrifi cation by allowing fi rms to buy up single­family homes, renovate them and sell them at higher cost. A re­ quirement for property owners to live in one of their redeveloped units for three years should help assuage fears of rampant speculation. Some gentrifi cation will probably still happen as neighbourhoods change, says Mr Metcalf. But it would come from homeowners being enticed to sell, rather than tenants being forced out be­ cause they can no longer aff ord the rent.

The biggest criticism levelled at sb9 is that it does nothing to create aff ordable housing. The new duplexes will be cheaper than the single­family homes that predat­ ed them, but may still be too pricey. Yet market­rate housing is also badly needed.

“You’re criticised for having too many af­

The Economist September 25th 2021

San Francisco Bay

5 km

San Francisco county, residential zoning, 2020 Single-family residential

Other residential*

Source: Othering and Belonging Institute, University of California, Berkeley

*Including multi-family

fordability requirements, or not enough aff ordability requirements”, says Scott Wiener, a state senator and the perennial author of California housing bills. “No matter what you do, people are going to nitpick at the bill. Frankly that is one expla­ nation for why we have a housing crisis.”

To turbo­charge homebuilding, Califor­ nia might take a lesson from improv com­ edy and adopt a “yes, and” approach to housing. Yes, end single­family zoning— and build aff ordable housing, streamline the permit process, help cities navigate tricky policy and crack down on munici­ palities that are not building. These laws alone “are not going to end the aff ordabili­ ty crisis in California,” says Jason Elliott, Mr Newsom’s housing tsar. “No one is sug­ gesting they are.” But it’s a start. n Booster jabs

Ahead of the science WASHINGTO N, DC

Biden’s booster plan has created confusion and concern

T

he biden administration was sup­ posed to just “follow the science”, a welcome contrast to the previous regime.

But one month after it announced covid­19 boosters would be available for everyone, Americans are still left wondering who will get boosters and when.

On August 12th, amid the Delta surge, the Food and Drug Administration (fda) approved boosters for some immunocom­ promised people who had received the Mo­ derna or the Pfi zer­BioNTech vaccine. One week later, the Department of Health and Human Services (hhs) announced that ev­ ery American could receive a shot eight months after their second dose of the Mo­ derna or Pfi zer vaccine, starting on Sep­ tember 20th. Many vaccinated Americans were eager for the extra protection.

Since then, two leading fda scientists have announced their intention to leave or retire. Many have speculated on the rea­ son. But shortly after announcing their in­ tentions, they released a paper in The Lancet, a medical journal, written with several other researchers, concluding that booster doses are not needed for the general pub­ lic. A few days later, on September 17th, an advisory panel to the fda, consisting of in­ dependent experts, recommended boost­ ers only for high­risk individuals, people over 65 and health­care workers who had received the Pfi zer vaccine at least six months previously. Although the fda does not always follow the recommendations of their advisory panels, it usually does.

The recommendation still needs fda approval and cdc support before this group of people can get their jabs. And de­ pending on how both organisations inter­ pret “high­risk,” as many as 129m non­el­ derly Americans with pre­existing condi­ tions could qualify, explains Howard Koh, former assistant secretary for health in the Obama administration. But the statement by the advisory panel contradicts President Joe Biden’s wider­reaching booster plan.

This back­and­forth between the ad­ ministration and scientists has conse­ quences. By announcing the need for booster shots before the fda approved them, the administration signalled, proba­ bly unintentionally, that the current regi­ men is no longer eff ective for everyone.

Boosters are common for vaccines to en­ sure protection from disease. Sometimes multiple doses are needed to achieve life­ time immunity. Some vaccines require an extra dose after a period of time to keep be­ ing eff ective. Others require additional doses to counter diff erent strains.

Since the covid­19 virus is new, further analysis is needed to determine if addi­ tional doses are necessary. A needless booster could be harmful, as well as being a waste given that worldwide only 32% of adults are fully vaccinated. The adminis­ tration’s original statement said that boosters were contingent on recommen­ dations by the fda and cdc, but that nu­ ance was lost on many.

Partly as a result of the confusion, many immunised Americans are now question­ ing their current defence against the Delta variant, despite the hhs announcement stating that, “vaccines...continue to be re­ markably eff ective”. Some patients are get­ ting additional doses without approval. By mid­August, before the announcements, about 1m Americans had helped them­ selves to a third dose, according to the cdc.

That number will probably grow. (2.2m people have received an additional dose since the cdc recommended boosters for the immuno­compromised, but it is un­ clear how many qualifi ed.)

Some state governors are adding to the

012

The Economist September 25th 2021

United States

confusion. Several are encouraging their residents, particularly the elderly, to get boosters despite the lack of fda approval.

Governor Larry Hogan of Maryland, a Re­ publican, signed an executive order on September 8th authorising boosters for pensioners living in communal settings, like retirement homes. Mr Hogan has re­ peatedly criticised the administration for its inconsistent messages.

Several other governments have done a better job of keeping their recommenda­ tions in line with the research. Britain’s and Italy’s are recommending boosters for older people, front­line health­care work­ ers and the vulnerable. Germany’s and Greece’s governments are off ering boost­ ers for the immuno­compromised and el­ derly only. The booster confusion might have been prevented if the administration had stuck to its science­fi rst pitch. n Covid-19 in schools

Safety in numbers Case numbers have risen. How much of that is because of schools reopening?

T

he beginning of the school year nor­ mally brings a sense of relief for most parents. But with covid­19 cases in America reaching levels last seen in February, and the highly infectious Delta­variant sweep­ ing across the nation, the start of term was instead met with fear. Though the benefi ts of in­person schooling are clear—children learn better at their desks, the vulnerable are less likely to be left behind, and parents are able to get on with their own work— there were concerns that mixing in packed playgrounds and classrooms would in­ crease the spread of the virus.

Across the country there is huge varia­

bility in back­to­school dates. Children in some Texas school districts returned to the classroom in the middle of July, whereas New York City’s 1m pupils went back only last week. This variation creates an oppor­ tunity to test how the start of term has in­ fl uenced covid­19 cases. So The Economist built a statistical model to do just that.

First, we calculated the average case­ rates for each county for each week from the middle of June, before any schools re­ turned, to now. We compared the case­rate in each county with the average within the state. This allows the model to control for overall trends in case numbers as well as other factors, like mask mandates or su­ perspreader events, which might make the virus more or less prevalent within a state.

We then examined the eff ect of the diff er­ ent return­to­school dates, to see if coun­ ties that went back earlier had higher case­ rates than the rest of the state.

The results are clear. In the weeks after the beginning of term, covid­19 cases in a given county were greater than would be otherwise expected. Even when control­ ling for demographic factors like age, race, income, education and politics, going back to school drove up the case­rates (see chart). On average, for every extra week of term the increase in cases was about the same as the eff ect of a percentage point in­ crease in Donald Trump’s 2020 vote share (pro­Trump counties tend to have higher covid­19 rates).

The eff ect was not the same every­ where, however. According to our model, as well as reducing the overall number of cases, the county’s vaccination rate played a big role in infl uencing what happened after schools returned. In counties where many people were jabbed, the start of term had little eff ect on the spread of the virus.

In counties with the lowest vaccine take­ up, cases surged after schools returned.

It is worth noting that across America very few children have been vaccinated, so jabs themselves probably have little im­

Biology lessons United States, covid-19 case rates before/after return to school Difference in case rates between counties that did or did not return to school

Average daily cases per 100,000 people Counties that returned to school in given week All other counties in that state Confidence interval

80

By vaccination quintiles

40

1 Lowest 20% 2 3 4 5 Highest 20%

60 40

20 0

20 -20

0 3

2 1 0 1 2 3 Weeks before/after return to school

Sources: The New York Times; CDC; publicholidays.us

4

3

2 1 0 1 2 3 Weeks before/after return to school

4

Playground tactics

pact on preventing spread within class­ rooms. In counties where more people are vaccinated, infections originating inside the school gates may not escape into the community as easily. Additionally, it may be that schools in the most jabbed regions also take more precautions. They might enforce mask wearing or social distancing more strictly, for example.

States set their own rules when it comes to controlling covid­19 in schools. More than a dozen states mandate face coverings in public schools, and nine require teach­ ers and staff to be vaccinated or to undergo weekly testing, including Washington state and Oregon which have made vacci­ nation obligatory for teachers. On Septem­ ber 9th the Los Angeles school board voted unanimously to require vaccines for stu­ dents aged 12­years and over. At the other end of the spectrum, several conservative states have tried to ban schools from en­ forcing mask wearing.

Our model cannot pick out the eff ects of these state­level interventions. However, a slew of other research studies from across Europe and America have found that mask­ wearing and social­distancing work to pre­ vent the spread of covid­19 in schools. With these measures in place, schools were not the most likely sources of infections for children. And if a child did catch the virus it tended not to spread to classmates. How­ ever, the situation looks quite diff erent when these measures are relaxed while the virus is spreading, as has been the case in much of the country.

With appropriate precautions in the classroom and high levels of community vaccination, the beginning of the new term need not have been so scary. Our fi ndings add to the growing consensus that in­per­ son schooling doesn’t have to be accompa­ nied by growing covid­19 cases. But while some states continue to put politics before public safety, it probably will. n

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United States Academic freedom

Free now to speak A professor’s resignation highlights pressures to conform

P

eter boghossian, an untenured assis­ tant professor of philosophy at Portland State University (psu), was one of the most vocal critics of post­modern ideology in the academy, until he resigned from his university on September 8th. In 2018 he and two authors tried to publish 20 fake papers, in order to expose what they saw as a willingness to publish anything that used the right jargon. Seven were published, in­ cluding one on “queer performativity” in urban dog parks, and one calling astrono­ my imperialist and suggesting physics de­ partments study interpretative dance.

This is a loss to satire, but is it also rep­ resentative of anything larger? In his resig­ nation letter, Mr Boghossian wrote that the university had been changed from “a bas­ tion of free inquiry into a Social Justice fac­ tory whose only inputs were race, gender and victimhood and whose only outputs were grievance and division”. Students at psu are “being trained to mimic the moral certainty of ideologues,” he wrote. A spokeswoman for the college retorted that, “Portland State has always been and will continue to be a welcoming home for free speech and academic freedom.”

Other scholars have found themselves in similar situations. Those conservatives who remain in the academy may be used to this. But increasingly it is aff ecting liber­ als. A report published in August by the Foundation for Individual Rights in Educa­ tion (fire), a campaign group, has found that since 2015 the number of scholars tar­ geted with demands for investigation, de­ motion, censorship, or termination reached 113 in 2020, or a total of 426 cases in fi ve years. Some of these cases may stretch the casual observer’s sympathies. The ma­ jority, though, are “academics on the left being attacked from further left”, says Sean Stevens, one of the authors.

The censoring is not just in the human­ ities. In 2020 Norman Wang, a cardiologist at the University of Pittsburgh, was demot­ ed for publishing a paper in the Journal of the American Heart Association that ana­ lysed and criticised diversity initiatives.

The journal issued an apology and retract­ ed it. A professor at a University of Califor­ nia medical school was recently recorded apologising in an endocrinology lecture for using the term ‘pregnant women’.

Some on the left claim that illiberalism on campus is overblown. In an article in Liberal Currents, Adam Gurri wrote of the

The Economist September 25th 2021

fire report that, “if any other problem in social life was occurring at this frequency and at this scale, we would consider it ef­ fectively solved.” That is doubtful. Accord­ ing to Mapping Police Violence, a website, police have killed 381 unarmed African­ Americans since 2013. This is (rightly) con­ sidered a problem and a global movement exists to draw attention to it.

Part of the problem, says Bruce Gilley, one of Mr Boghossian’s supporters at psu, is the “diversity industrial complex” with­ in college administrations, that need to justify their existence. Diversity vice­pres­ idents at Oregon’s three public universities have an average compensation of $262,000. In 2018, Mark Perry of the Uni­ versity of Michigan revealed that his uni­ versity had nearly 80 diversity offi cers at a total annual payroll cost of $10.6m.

This makes it hard for anyone who wants to challenge prevailing views, espe­ cially on issues such as race and gender, Mr Boghossian argues. “Just the threat of be­ ing called in by the diversity and inclusion offi ce is enough to silence people.” n Policing

The Floyd eff ect As shootings rose, 911 calls fell in the aftermath of George Floyd’s murder

C

onventional wisdom says that when a police shooting captures public atten­ tion, sparking outrage over police vio­ lence, offi cers respond by pulling back, in a phenomenon known as the “Ferguson ef­ fect” (named for a city that saw widespread protests against police misconduct in 2014). Common sense also suggests that when people mistrust the police they are less likely to call them. Criminologists are

divided over whether the Ferguson eff ect actually exists. But a new working paper from Desmond Ang, an economist at Har­ vard’s Kennedy School of Government, and his colleagues shows that the latter phe­ nomenon is real: after George Floyd’s mur­ der, calls to the police plummeted.

The authors combined police­related 911 calls with data from ShotSpotter, which uses audio sensors placed around Ameri­ can cities to detect and alert police to gun­ shots. They then calculated the ratio of 911 calls to ShotSpotter­detected gunshots in the eight cities for which data were avail­ able for 2020. You might expect that, under normal circumstances, higher crime would lead to more 911 calls, lower crime would lead to fewer calls, and this ratio would remain relatively steady.

Mr Ang and his colleagues found that in the week before Mr Floyd’s death, there were around 200 calls to 911 made for every shot detected by ShotSpotter. After the 25th there were only around 90 (see chart). This drop in the call­to­shot ratio was driven by both an increase in the number of shots de­ tected and a decrease in the volume of 911 calls. The former may raise doubts about the accuracy of the data: the protests sparked by Mr Floyd’s death made cities much noisier places than usual. But when the authors used gun deaths and injuries in their analysis, rather than gunshots, they arrived at the same conclusion. After May 25th the number of 911 calls for every gun death or injury fell by almost half.

The fi ndings may reshape social scien­ tists’ understanding of the Ferguson eff ect.

Calls from the public are an important source of information for police, says Mr Ang. “Civilian and community engage­ ment are needed for the police to do a good job, to identify and solve crimes and to en­ sure public safety.” Events that harm the public’s trust in law enforcement, such as unlawful police killings hinder such en­ gagement, putting the lives of both civil­ ians and offi cers at risk. n

Trust fall United States*, 2020 Number of 911 calls per shot detected

% change on week prior to George Floyd’s death 400

Covid-19: national emergency declared

150 Shots detected

George Floyd killed

300

100

200

50

100

0 911 calls

0 J

F

M

A

M

J

J

A

S

O

N

D

-50 J

F

M

A

M

J

J

A

S

O

N

*Baltimore, Cincinnati, Washington DC, Milwaukee, Minneapolis, New York, Richmond (California) and San Diego Source: “Police violence reduces civilian cooperation and engagement with law enforcement”, by D. Ang et al., September 2021

D

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The Economist September 25th 2021

United States

Mississippi’s last abortion clinic

Legal and rare JACKSO N

Mississippi off ers a glimpse of what would happen if the Supreme Court overturned Roe v Wade

A

smiling woman stands in the drive­ way leading to Jackson Women’s Health Organisation, the only abortion clinic in Mississippi. Beside her, a large sign reads: “Bags for clinic patients here”.

Though volunteers dressed in “clinic es­ cort” vests gesticulate to drivers that they should ignore her, most stop and are hand­ ed a gift bag. Inside are images showing a fetus as it develops and a note assuring women: “You can be a great mama!”

As women get out of their cars, the prot­ esters step it up. “Ma’am, this is your grandchild!” one woman calls to another who is hurrying her teenage daughter in­ side. “Don’t lead it to the slaughter!” A man in a red baseball cap embroidered with a cross yells through a fence to patients in­ side. An escort wearing a “Pro abortion witch” face mask turns up a stereo blasting rock music to drown out his noisy exhorta­ tions to follow the Lord and refrain from committing murder.

The pressure women endure on their way into this small building in Mississip­ pi’s capital is one part of a larger eff ort to prevent them from having abortions. That they should nonetheless continue to tra­ vel, often many miles, to do so, seems to contradict the state of Mississippi’s recent claim that Roe v Wade can safely be ditched. In a recent request that the Su­ preme Court overturn its half­century­old ruling, the state argued women’s attain­ ment of “both professional success and a

rich family life” and improved access to contraception, among other factors, meant Roe was “decades out of date”.

The clinic tells a diff erent story. Many of its patients are poor. More than 70% are black, though only 38% of Mississippi’s population is. (In contrast, on the day your correspondent visited, all the protesters were white.) Posters inside, meanwhile, contrasting the effi cacy of contraception methods, off er a reminder that Mississip­ pi’s schools have promoted “abstinence” over sex education. In a fi ling to the Su­ preme Court last week, the clinic’s lawyers pointed out that women’s ability to get on in life still depends on them having control over their reproductive health.

The fi lings were made ahead of the most important Supreme Court hearings on abortion in decades. On December 1st the court will hear arguments in Dobbs v Jackson Women’s Health Organisation, which concerns Mississippi’s ban on most abortions after 15 weeks. In 2018 a court blocked the law because it violates rulings that abortion on demand is a right until a fetus becomes viable. Speculation that the court will use the case to weaken Roe or overturn it altogether has been intensifi ed by its refusal to prevent an abortion ban in Texas from going into eff ect.

No one, except perhaps the justices, knows whether the court will overturn the 50­year­old ruling next year. “If it upholds Mississippi’s law, it will have overturne­

d Roe, regardless of whether it says those words,” says Elizabeth Sepper of the Uni­ versity of Texas at Austin. Even if it sets a lower gestational limit, “total bans would be around the corner,” she reckons.

Mississippi is one of 12 states with a “trigger ban” that would click into eff ect, eliminating most abortions, if Roe were overturned. Yet here, as in other conserva­ tive states, Roe has already been hollowed­ out by laws that make it hard for clinics to operate. Six states have only one clinic left.

Curbing abortion in this way creates two big problems. The fi rst is more abor­ tions later in pregnancy. In Mississippi the impracticality of having one clinic cover­ ing 48,430 square miles, much of it poor and rural, is exacerbated by pernickety reg­ ulations. One, mandating that patients see a doctor on two occasions at least 24 hours apart, is especially onerous. Shannon Brewer, the director of Jackson Women’s Health, says it is not unusual for women, struggling to organise time off work, child care, travel and funding—America prohib­ its the use of federal money for abortions— to postpone a scheduled appointment “from next week to next month”.

Most weeks, says Ms Brewer, who is a sonographer, the clinic sees a woman whose pregnancy has passed “17, 18, 19” weeks. Because the doctors (who come in from other states because locals were tar­ geted) do abortions until 16 weeks (one re­ fuses to do so after 12) the clinic refers such women elsewhere. Yet it can be hard to fi nd doctors who perform abortions much into the second trimester, which contributes to the second big problem: some women’s failure to secure an abortion altogether.

Life and liberty No one knows how many women fall into this group, but research suggests policy­ makers should strive to limit the number.

Using data from a nationwide longitudinal study that investigated the eff ects of either having an abortion or being turned away, researchers found that women who were denied abortions experienced a sharp spike in fi nancial hardship, including debt, bankruptcies and evictions. Their children, unsurprisingly, fared poorly too.

Some obstetrician­gynecologists worry that overturning Roe could push up Amer­ ica’s maternal or infant mortality rates.

Women who seek an abortion know ve­ ry well what is at stake. But that may not make the harassment many face any less upsetting. In Mississippi, a still deeply re­ ligious state in which more than 80% of adults say they are Christian, protesters’ repeated, angry allusions to Jesus and the Bible seem particularly cruel. Ms Brewer says that by the time they get through the clinic door many patients are in tears. One question, she says, she is asked repeatedly.

“Do you think I’m going to hell?” n

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United States

The Economist September 25th 2021

Lexington Chuck’s modest leadership

On the risks and rewards of the Democratic Senate leader’s relentlessly clubbable style

A

s a self-described “angry centrist”, Chuck Schumer used to relish fi ghting his party’s radical fringe. In a centre­left mani­ festo he published in 2007, entitled “Positively American”, the Senate majority leader shuddered to remember the left­wing ac­ tivists he had encountered at Harvard in the 1960s who “seemed to want to tear down every part of the American system”. He was even more contemptuous of his party’s unwillingness to repudiate them. “In politics, you have to either defend or denounce what your friends say,” wrote Mr Schumer. “If you don’t, people start to wonder what you really believe.”

The activist group he recalled has morphed into the Democrat­ ic Socialists of America, whose best­known member is Represen­ tative Alexandria Ocasio­Cortez. She is widely believed to be mull­ ing a primary challenge to Mr Schumer. Yet far from defi ning him­ self against her radicalism, he, the least well­known of the veteran Democratic trio running the government, has embraced it. He of­ ten appears alongside Ms Ocasio­Cortez in New York. And he has adopted a couple of her causes, student debt forgiveness and legal pot. For the many conservatives who detect aoc’s socialist hand in everything the Democrats do, Mr Schumer is Exhibit A. The Democrats have indeed shifted to the left, albeit more modestly than their opponents claim. And as he has always swum in the party’s mainstream—much like Joe Biden and Nancy Pelosi, the triumvirate’s other members—he has naturally shifted with it.

Yet his benevolence towards the fi re­starter from Queens is not only about protecting his left fl ank. It refl ects Mr Schumer’s gener­ al approach to sustaining the slimmest possible Senate majority.

With just 50 votes plus that of Kamala Harris, the vice­presi­ dent, and no prospect of Republican support on almost any of the major bills Mr Biden wants to get passed, Mr Schumer cannot af­ ford to lose a single Democrat. Even with a bigger majority and less ambition, his Republican predecessor showed how hard that will be. Mitch McConnell passed a tax cut, failed to scrap Obamacare and left it at that. And the left—a tribe spanning Joe Manchin and Bernie Sanders—is more quarrelsome than the right. Mr Schum­ er’s response has essentially been to encourage his colleagues to push for whatever in Mr Biden’s agenda, loosely defi ned, they like best. And he has done so persistently, coaxing the party to hang to­

gether, in the hope that the longer a falling­out can be prevented the less likely it will be.

Where Mr McConnell and Harry Reid, the previous Democrat in his offi ce, maintained an aura of immense power, Mr Schumer, the fi rst New Yorker and Jew to occupy it, has a more relaxed style.

He has tripled the size of Mr Reid’s kitchen cabinet, making it less a coterie of feared lieutenants than a team­building exercise, which includes Mr Sanders and Mr Manchin. With his signature fl ip­phone always to hand, he spends much of each day calling around his caucus, congratulating, cajoling or just checking in.

The results of his more modest approach are better than many Democrats had expected.

A former attention­seeking legislator (“the most dangerous place is between him and a camera,” Bob Dole quipped) and cam­ paign strategist, Mr Schumer was said to lack the grip of Mrs Pelo­ si, his counterpart in the House. Yet among Democrats he is now universally praised. “It’s literally impossible to imagine anyone else doing the job,” says Chris Coons of Delaware.

Unheralded success will do that. Mr Schumer has been credited with coaxing Mr Manchin into line on the $1.9trn stimulus the Democrats passed in March. He is also the architect of a so­far suc­ cessful bifurcation of infrastructure spending—which some Re­ publicans support—and the rattle­bag of safety net and climate measures that Democrats hope to pass on a partisan basis. Even as this “two­track” process enters what promises to be a stormy last phase of negotiation (which a customary autumnal row over funding the government threatens to make even harder), a large majority of Democrats are fi rmly behind it.

No one should confuse this with a good way to govern America.

Much like Mr Schumer’s something­for­everyone leadership style, the Democrats’ eff ort to jam a presidential term’s worth of new programmes and reforms into a budget bill is illustrative of their weakness and a broken system. A decade of gridlock suggests there is no other way to make progress on climate change, in­ equality and other big issues. Yet their approach is nonetheless riddled with shortcomings.

The old saw that bipartisan dealmaking, conducted in good faith, produces better laws still holds. The excesses of the stimu­ lus package compared with the sleeker­looking infrastructure deal illustrate that truth. And Mr Schumer’s light­touch steerage looks like the particular enemy of hard choices. If and when Mr Manchin digs in for a steep reduction in the $3.5trn cost of the draft budget bill, Democrats should drop some of their more ex­ pendable schemes—such as free community college—in order to preserve climate and other must­haves. Yet a general hair­cut, which everyone might grumblingly live with, may be more consis­ tent with Mr Schumer’s approach.

It might not get that far. His eff ort to prolong the negotiation could be storing up an ever more dramatic and damaging blow­ out. For that matter, even if the Democrats pass some semblance of their plans, it is not clear that voters would reward them for it.

Virtue’s uncertain reward Their baggy monster of a budget bill, to borrow Henry James’s phrase, looks too sprawling to be reduced to an eff ective slogan.

The Republican attack on it as socialism would be easier to exe­ cute. When working on campaign strategy, Mr Schumer would have had that fl aw uppermost in mind. Now consumed by the im­ probable task of passing laws, he seems unable to. Whatever he may be telling his colleagues, his party cannot have it all. n

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The Economist September 25th 2021

→ Also in this section 28 Drugging fish in Chile 28 Pre-Columbus tales of the Americas 29 Bello: The pen v the paramilitaries

Canada

A pointless election

TORO NTO

Justin Trudeau keeps his job, but loses some lustre

B

y canadian standards the election campaign was ugly. Protests dogged the candidates of the main parties. Loutish­ ness went “beyond the typical uptick” for federal elections, said the Royal Canadian Mounted Police. It came especially from anti­vaccine activists. This month some­ one threw gravel at Justin Trudeau, the Lib­ eral prime minister, who says that vaccina­ tions should be mandatory for federal em­ ployees and on aeroplanes and trains.

Yet the melodrama changed almost nothing. Mr Trudeau, who had called a snap election for September 20th in the hope of gaining a majority in the House of Commons, will instead continue to lead a minority government. The arithmetic in the 338­seat Parliament has changed little (see chart on next page). Mr Trudeau will continue to depend on smaller parties, es­ pecially the left­leaning New Democrats (ndp), to enact his programme. The oppo­ sition Conservatives, who had 121 seats in the outgoing Parliament, will have roughly the same number in the incoming one.

None of Canada’s main political leaders will come out of the election with his

standing much enhanced. Mr Trudeau has no good answer to the question of why it was necessary to hold an election during a fourth wave of the pandemic. The Liberals appear to have come second in the popular vote. Their lacklustre performance may prompt speculation that this election will be Mr Trudeau’s last. The ndp’s leader, Jag­ meet Singh, failed to strengthen signifi ­ cantly his party as a challenger for votes of left­leaning types. He will try to nudge the government to spend more money on health care and raise taxes on the rich.

Erin O’Toole, the Conservatives’ leader since August 2020, may face the most pain­ ful questions. He campaigned as a reassur­ ing centrist, off ering voters a down­to­ earth leadership style while proposing policies on climate change, child care and “reconciliation” with indigenous people that, at fi rst glance at least, did not seem vastly diff erent from the Liberals’. Yet Mr O’Toole could not ignore his party’s ob­ streperous right wing. He fl ip­fl opped on gun control, which hurt his credibility.

Many Canadians who pugnaciously op­ pose what they see as Mr Trudeau’s smug

progressivism opted for the populist Peo­ ple’s Party. It tripled its share of the vote, to 5%, though it failed to win any seats. If Mr O’Toole stays on as the Conservatives’ lead­ er, as he hopes to do, he will have to work out how to win back voters who hate vac­ cines and political correctness, without alienating centrists.

Mr Trudeau reads the result as encour­ agement to carry on a fi ght against the pan­ demic that, despite the fourth wave, has been relatively successful, and to “move Canada forward”, as the Liberals’ campaign slogan has it. Canada has had 49 excess deaths per 100,000 people, compared with America’s 241, according to calculations by The Economist. In his victory speech Mr Trudeau claimed “a clear mandate to get Canada through this pandemic and to the brighter days ahead”.

Those bright days may be far off . Cana­ da’s economy, the world’s ninth­largest, re­ mains fragile. It shrank unexpectedly in the second quarter of this year, largely be­ cause of the pandemic and global short­ ages of computer chips. The Bank of Cana­ da expects growth to resume in the second half of 2021, but says the recovery is “chop­ py”. Mr Trudeau’s re­elected government will continue some pandemic­related measures to shore up businesses and in­ comes; the Canada Recovery Hiring Pro­ gram, a wage subsidy, is to be extended to March 31st.

The government will continue with plans to make child care available to fam­ ilies for C$10 ($8) a day within fi ve years

27

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The Americas

The Economist September 25th 2021 Salmon farming

Trudeau’s twins Canada, parliamentary election results, seats Total=338

170 seats needed for majority

3

1*

24 32

2 25 34

Green New Democratic Bloc Québécois

121

119

Conservative

157

158

Liberal

2019

2021†

*Independent †99.8% of polls reported, Sep 23rd, 5am GMT Source: Elections Canada

and to reduce Canada’s greenhouse­gas emissions in 2030 by 40­45% from levels in 2005. The Conservatives would have scaled both policies back.

In making the case for re­election Mr Trudeau promised extra spending over fi ve years of C$78bn, roughly 3.5% of this year’s gdp. It includes C$6bn in this fi scal year to eliminate backlogs of medical procedures, plus around C$15bn over fi ve years to help Canadians cope with high housing costs, in part by building 1.4m houses.

Although fi scal hawks worry about Mr Trudeau’s spending plans, he is not throw­ ing caution to the wind. The Liberals will impose higher taxes, including a surtax on large banks and insurers, and promise to reduce federal defi cits and debt as a share of gdp. The Institute of Fiscal Studies and Democracy at the University of Ottawa, a think­tank, says the pledge is credible.

But economists will continue to grum­ ble that the Liberals show too little interest in promoting growth and productivity.

Business investment per worker has fallen since 2014, according to a recent paper by the c.d. Howe Institute, a think­tank in To­ ronto. Among the main worries about the new government is that the tax­the­rich agenda favoured by the ndp will infl uence policy, which could discourage invest­ ment. Businesspeople are “feeling quite rattled”, says William Robson, one of the report’s authors. The Liberals’ platform has ideas for investing in research, which could help raise productivity, but has little to say, for example, about boosting compe­ tition in telecoms or aviation.

Canadian voters have given Mr Trudeau only a grudging endorsement. “There’s a lot that I don’t like, but now is not the time to experiment with new policies and new things,” says Kathy Ustel, a resident of Richmond Hill, a town located in the elec­ toral battleground of greater Toronto. The constituency’s Liberal mp easily won re­ election. The Liberal prime minister will now have four years to convince Canadians that his old approach really can move the country forward. n

Fishing for compliments Chilean salmon take a vigorous leap towards sustainability

I

n 2015 alexis sánchez, a Chilean foot­ baller, scored the decisive penalty in the Copa América fi nal against 14­times win­ ner Argentina, ending Chile’s 100­year dry spell in the tournament. Now Chilean offi ­ cials hope he will give the country’s export market a similar boost. He is the face of a campaign launched in June by ProChile, a government agency. Arturo Clément, the president of SalmonChile, an industry bo­ dy, hopes it will depict the country as a world­class exporter of sustainable fi sh.

Fish farming is supposed to provide cheap piscatorial protein while also reliev­ ing pressure on the oceans. But critics say its environmental virtues are overstated, because carnivorous farmed fi sh, such as salmon and trout, are given feed derived from wild fi sh. Globally much of the indus­ try has become more sustainable over the past two decades, by putting salmon on a partially plant­based diet or reducing the use of antibiotics to treat their diseases.

Chile’s fi sh­farming industry still has a way to go. It uses more antibiotics than its competitors: for every tonne of salmon produced, fi sh are showered with an esti­ mated 500g of bacteria­killing medicine, compared with hardly any at all in Norway.

Chile lags in standards for the discharge of nutrients into waste water, which are around 15 times stricter in Europe, Austra­ lia and the United States. In 2016 two harm­ ful algal blooms, caused in part by unusu­ ally high ocean temperatures, poisoned shellfi sh and killed millions of farmed salmon. Many accused producers of exac­

Back of the net

erbating the problem by dumping into the ocean 4,500 tonnes of rotting fi sh that died in the fi rst bloom. A government report dismissed the possibility that the salmon industry fuelled the blooms, but an inde­ pendent task­force said it was possible that rotting biomass had contributed.

The country’s environmental rules are a hangover from the dictatorship of General Augusto Pinochet. The military junta wanted to diversify the country’s exports from copper; salmon farming was seen as a valuable way of doing so. It is now Chile’s second­biggest export. But fi shing policies rarely took the environment into account.

Over the past decade reforms have benefi t­ ed fi sh producers rather than try to miti­ gate farming’s ecological impact, argues Beatriz Bustos at the University of Chile.

Some producers are trying to change.

Between 2017 and 2019 antibiotic use de­ clined by nearly a third. More than half of the 155 members of Chile’s constitutional assembly, elected this year to write a new constitution, want to boost environmental protections. This refl ects a growing de­ mand for greener policies. If the fi sh farm­ ers do not mend their ways, they risk being regulated out of existence. n Pre-Columbian exploration

Medieval mapping A monk in 14th-century Italy wrote about the Americas

T

hat vikings crossed the Atlantic long before Christopher Columbus is well established. Their sagas told of expedi­ tions to the coast of today’s Canada: to Hel­ luland, which scholars have identifi ed as Baffi n Island or Labrador; Markland (Labra­ dor or Newfoundland) and Vinland (New­ foundland or a territory farther south). In 1960 the remains of Norse buildings were found on Newfoundland.

But there was no evidence to prove that anyone outside northern Europe had heard of America until Columbus’s voyage in 1492. Until now. A paper for the academic journal Terrae Incognitae by Paolo Chiesa, a professor of Medieval Latin Literature at Milan University, reveals that an Italian monk referred to the continent in a book he wrote in the early 14th century. Setting aside the scholarly reserve that otherwise characterises his monograph, Mr Chiesa describes the mention of Markland (Lat­ inised to Marckalada) as “astonishing”.

In 2015 Mr Chiesa traced to a private col­ lection in New York the only known copy of the Cronica universalis, originally writ­ ten by a Dominican, Galvano Fiamma, be­

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The Economist September 25th 2021

tween around 1339 and 1345. The book once belonged to the library of the basilica of Sant’Ambrogio in Milan. In Napoleonic times, the monastery was suppressed and its contents scattered. The owner of the Cronica let Mr Chiesa photograph the en­ tire book and, on his return to Milan, the professor gave the photographs to his grad­ uate students to transcribe. Towards the end of the project one of the students, Giu­ lia Greco, found a passage in which Galva­ no, after describing Iceland and Green­ land, writes: “Farther westwards there is another land, named Marckalada, where

The Americas

giants live; in this land, there are buildings with such huge slabs of stone that nobody could build them, except huge giants.

There are also green trees, animals and a great quantity of birds.”

Mr Chiesa says that giants were a stan­ dard embellishment of faraway places in Norse folklore and, indeed, Galvano cau­ tioned that “no sailor was ever able to know anything for sure about this land or about its features.” The Dominican was scrupulous in citing his sources. Most were literary. But, unusually, he ascribed his description of Marckalada to the oral

testimony of “sailors who frequent the seas of Denmark and Norway”.

Mr Chiesa believes their accounts were probably passed on to Galvano by seafarers in Genoa, the nearest port to Milan and the city in which the Dominican monk is most likely to have studied for his doctorate.

His thesis raises a new question: why does the eastern seaboard of America not feature on any known Genoese map of the period? But it could help explain why Co­ lumbus, a Genoese, was prepared to set off across what most contemporaries consi­ dered a landless void. n

Bello The pen versus the paramilitaries A Nicaraguan writer reflects on exile from a dictatorship

“M

onsignor is armed with the word. The word is more powerful than a four­barrelled machinegun, com­ rade,” says Lord Dixon, a character in “Tongolele no sabía bailar” (“Tongolele didn’t know how to dance”), a new novel

by Sergio Ramírez, a Nicaraguan writer.

“Those are stupidities,” replies another.

“Bullets rip through cassocks too.” And yet it appears that Lord Dixon, whose role is that of a chorus, is right. In the novel the bishop in question is so dangerous to those in power that they secure his exile to Rome. And Mr Ramírez’s novel has so enraged the dictatorship of Daniel Ortega that this month it issued an arrest war­ rant for him. “I think the book was the trigger,” Mr Ramírez told Bello. Mr Ortega has banned it and customs offi cers have been seizing copies.

The two men were once comrades. Mr Ramírez was vice­president, under Mr Ortega, in the revolutionary Sandinista regime of the 1980s. Mr Ramírez then joined a short­lived breakaway move­ ment that embraced democracy and, when that fi zzled, devoted himself to writing (he won the Cervantes prize, Spain’s most prestigious literary award, in 2017). Mr Ortega won an election in 2006 and, together with his wife Rosario Murillo, a devotee of esoteric cults, has clung to power ever since.

The charges against Mr Ramírez are totalitarian and specious. He is accused of laundering money, goods and assets, “denigrating national integrity”, “provo­ cation” and conspiracy. The fi rst relates to grants of $13,000 over fi ve years re­ ceived by his cultural foundation for journalism courses. The charges echo those used by Mr Ortega’s regime to throw three dozen political prisoners in jail, seven of them opposition hopefuls in a presidential election due in Novem­

ber, which will now be a farce.

Mr Ramírez saw what was coming when he was interrogated by prosecutors in June. After that he left the country. The warrant thus amounts to a sentence of exile. In the 1970s, during the Sandinistas’ struggle against the dictatorship of Anas­ tasio Somoza, Mr Ramírez lived as an exile in Costa Rica. Back then, he says, “I had my whole life in front of me to think that I might return.” Now he is 79. “The horizon is shorter. I have to accept the probability of never going back. This creates anguish and you have to struggle against that.” He leaves behind a house full of books, col­ lected over many decades, which police have raided.

“Tongolele” is ostensibly a detective story. Its title refers to the nickname of the intelligence chief. Its rapid­fi re dialogue is written in the slang of the Central Amer­ ican street. The crimes it portrays are crimes of state. Its subject is a popular uprising against the Ortegas in 2018 and its repression, during which more than 300 people were killed. The characters are fi ctional but the events were real. So is

what the author calls “the dark, esoteric atmosphere”. So, too, were the paramil­ itaries, recruited from former guerrillas and the lumpen of Managua, who gunned down unarmed students using ak­47s and high­powered snipers’ rifl es.

They patrolled the city in unmarked Toyota Hilux pickups—just as the death squads of Argentina’s military junta did in unmarked Ford Falcons in the 1970s.

The Ortegas never appear by name in the book. It does, however, feature “the comandante” and the “señora”, “those at the top” whose whims inspire fear, para­ noia and betrayal in a claustrophobic world in which fanaticism and oppor­ tunism are “twin diseases”. “Who are my enemies and who are my friends, now that all the dogs piss on me?” asks Tongo­ lele, as he falls out of offi cial favour.

“We saw how those who when young struggled for a new world infl icted a coup d’etat on the people, changing the constitution to perpetuate themselves in power in the name of a now­dead revolu­ tion, and we said nothing,” preaches the bishop in the novel. The students raised their voices and were slaughtered. Re­ pression worked, Nicaraguans are scared and the Ortegas and their prison regime look secure. Nevertheless, Mr Ramírez thinks a return to democracy can only come from within. The regime “won’t last for ever”, he says. “There are mo­ ments when things suddenly change.”

Book­banning and the exile of writers have long been staples of Latin American dictatorships, including old­fashioned tyrants a century ago and military juntas in the 1970s. “Time is frozen in Latin America,” says Mr Ramírez. “It’s part of its attraction for novelists, that every­ thing repeats itself.” It is part of the re­ gion’s tragedy that such dictatorships are no longer of the past.

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The Economist September 25th 2021

→ Also in this section 31 The trials of unwed couples in India 32 The ICC goes after Rodrigo Duterte 32 Fighting fake news in South Korea 33 Banyan: Myanmar’s ever murkier wars

Democracy in Japan

Going round in circles

TOKYO

An unpredictable election is no cure for the malaise in Japan’s democracy

T

he four candidates for the presidency of Japan’s ruling Liberal Democratic Party (ldp) come from diff erent corners of the party’s big tent. Takaichi Sanae (pic­ tured, left) is a nationalist who wants to be­ come the fi rst female prime minister, but opposes allowing married couples to keep separate surnames. Kono Taro (pictured, bottom) is the American­educated scion of a political family; he supports gay mar­ riage and renewable energy. Kishida Fumio is a Hiroshima native who pines for a new form of capitalism. Noda Seiko is the mother of a disabled son. She has prom­ ised to be a champion for the vulnerable.

It is an unusually eclectic cast for the staid old party. It is also an unusually un­ predictable contest: facing a revolt from younger members, most of the party’s fac­ tion bosses have promised to allow their members to vote as they wish. The out­ come will remain unknown until the votes are counted on September 29th, unlike last year’s election when faction heads closed ranks beforehand and marshalled support for Suga Yoshihide, the current party lead­ er and prime minister.

Yet the exciting—by the standards of Japanese politics—leadership contest is al­ so a distraction from a deeper malaise in the country’s democracy. Japan has avoid­ ed the populism and paralysis that have be­ set many Western ones. But its stability is not the result of widespread support for the status quo. “Our democracy is facing a crisis, as people’s trust in politics is bro­ ken,” said Mr Kishida, a former foreign minister, upon entering the ldp race.

Apathy has become endemic. Voter turnout has plummeted (see chart on next page). The Pew Research Centre, a pollster, found in 2018 that 62% of Japanese believe elections do not change things. At the start of this year, more voters supported no par­ ty (41%), than supported the ldp (38%) or the Constitutional Democratic Party of Ja­ pan (cdp), the main opposition party (7%).

The opposition’s fundamental weakness means that, as Sone Yasunori of Keio Uni­ versity in Tokyo, puts it, “The ldp presi­ dential election is the real game, not the general election,” which will come and go some time in November.

The ldp has dominated Japanese poli­

tics since its founding in 1955. It ruled un­ interrupted for decades, leading scholars to refer to Japan as an “uncommon democ­ racy”. The reality was more complicated than a one­party state: factional groupings functioned as parties within the ldp. And for years, the Japanese left was suffi ciently powerful to check the government.

In 1993 a group of ldp defectors helped form a coalition that unseated the party for the fi rst time; they reformed the electoral system to facilitate more inter­party com­ petition. The coalition quickly fell apart, but in the ensuing years, a new party, the Democratic Party of Japan (dpj), grew into a competitive centre­left force, eventually unseating the ldp in 2009. It seemed to au­ gur the emergence of a two­party system with more debate over policy.

Yet the dpj faltered in offi ce, alienating voters, infuriating bureaucrats and upset­ ting Japan’s chief ally, America. It had the bad luck to be in power when an earth­ quake struck north­east Japan in 2011, trig­ gering a deadly tsunami and a nuclear meltdown in Fukushima. Its unsteady handling of the crisis made voters wary of power changing hands.

After losing to the ldp in 2012, the dpj fractured. Along with its coalition partner, Komeito, the ldp has won the past six na­ tional elections and established fi rm con­ trol over both houses of Japan’s Diet. The remains of the dpj coalesced into the cdp in 2017, but the new party has proved un­ able to mount a serious challenge. It cur­ rently holds 113 seats in the lower house to

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Asia

the ldp’s 275.

The ldp’s ham­fi sted handling of the pandemic seemed to open a window, how­ ever small, for more serious political com­ petition. Japanese voters have a history of showing up in droves when their frustra­ tion spills over. They did so repeatedly in local contests this year, most recently in August when they elected an opposition candidate as mayor of Yokohama over one backed by Mr Suga. Over the summer, some ldp members fretted they might go from their current supermajority to having to expand their coalition to stay in power.

“It’s scary,” one admitted.

When the unpopular Mr Suga resigned last month, the ldp hoped it would help to placate the public, which, despite its frus­ tration, remains wary of radical change. It appears to be working. The opposition par­ ties, which had been somewhat hopeful of making advances before his resignation, are now clamouring to get noticed in the media. Support for the ldp has risen nearly 10% in some polls since the resignation; the Tokyo stock market has been rising in anticipation of a new leader.

Mr Kono, a former foreign and defence minister who now serves as the govern­ ment’s vaccine tsar, seems to represent the best prospect for a meaningful shift in style, if not in substance. He leads the polls among the general public. He has built a reputation as a maverick willing to chal­ lenge the ldp’s entrenched ways. The par­ ty’s younger members tend to support him.

Yet even Mr Kono has been forced to confront the realities of ldp politics. In a press conference announcing his candida­ cy, he softened his opposition to nuclear Slimming down Japan Seats in the lower house of the National Diet September 17th 2021 Government: Opposition:

Liberal Democratic Party

Komeito

Constitutional Others Democratic Party

Vacancies

275

29

4

113

44

Voter turnout at general elections, % 80 75 70 65 60 55 50 1946

60

70

80

90

2000

Sources: The Association for Promoting Fair Elections; The House of Representatives

10 17

power and played down his openness to al­ lowing female heirs in the imperial family, two issues that had been symbols of his free thinking. Party elders nonetheless re­ main wary of him and are said to prefer the more pliable Mr Kishida.

Mr Kono’s best chance lies in winning an outright majority in the fi rst round of the ldp election, where parliamentarians and the party’s rank­and­fi le are given equal weight. If he fails to do so, he will have to prevail in a run­off where Diet members’ votes have far more weight.

There, the result will probably hinge on power struggles and internal party rival­

ries. Mr Kishida, the likely second­place fi nisher, could yet prevail. (Ms Takaichi is seen as having an outside chance at ad­ vancing; Ms Noda has virtually none.)

The fi rst task for the eventual winner will be to lead the party in the lower­house elections. While the ldp may lose some seats, the defeats are likely to be smaller than many in the party expected with Mr Suga at the helm. But unless the ldp’s next leader can connect with the public, he or she may last no longer than Mr Suga did.

Voters will have a chance to issue another verdict in upper­house elections which loom next summer. n

Love hotels in India

In and out MUMBAI

Companies are creating places for couples to canoodle in a conservative country

L

ocals call it “lover’s paradise”. Up­ van, a picturesque lake in Thane, a satellite city of Mumbai, attracts its share of joggers, cyclists and pot­smoking college students. But mostly the lane surrounding the lake is fi lled with young couples getting cosy under umbrellas.

Every Indian city has such spots, where skittish lovebirds fi nd privacy out in the open. A socially conservative culture, small fl ats, joint families, pricey hotels and uptight hotel­owners mean that there is often nowhere else to go.

That is starting to change. “Love hotels”, which off er (very) short­stay rooms to unmarried couples, are a well­ established concept in other Asian coun­ tries. But they have been a hard sell in India, says Prateek Singh, a co­founder of Brevistay, an app for hourly bookings at some 1,500 hotels. “The challenge was not convincing hotel owners of the busi­ ness model, but changing their mindset.”

What couples need is a room, not judgment, says Amit Sharma of Stay­ Uncle, a similar service that off ers rooms, including gay­friendly ones, in some 1,800 hotels. That is not a popular opinion in a country where moral polic­ ing is common. For years couples cele­ brating Valentine’s Day in Mumbai would be harassed and sometimes rounded up by the police. In March the chief minister of Uttarakhand, in north­ ern India, bemoaned the state of the country after encountering women “showing their knees” in ripped jeans.

Last month a state­run park in Hyder­ abad erected a notice announcing that “unmarried couples are not allowed inside the park”. It was taken down after a public uproar. “We need to be mature about the whole thing,” says an exasper­ ated Amit Chakrabarty, who works at a

Get a room!

hotel in Kolkata.

As in any other business, pleasing customers is the key, says Sikender Ya­ dav, whose hotels in Delhi are listed on StayUncle. About one in ten bookings involve extra services, such as room decoration packages. Errant lovers some­ times ask management to spell out “sor­ ry” with fl ower petals on the bed.

Apps do their bit to spice things up too. “We are all clean for you to get dirty,” runs a StayUncle slogan. The outfi t sup­ plies some rooms with a free “love kit” that includes chocolates and condoms.

Mr Sharma says he intends to elevate the “in­room experience” by providing smart speakers and Spotify accounts. More ambitious plans include trying to con­ vince hotels to soundproof their rooms.

“We are not in the hotel business,” he says, “but in the freedom­of­expression business.”

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Asia The Philippines’ drug war

Duterte harried MANILA

The president and his killer cops are beyond the reach of the law—for now

F

or once, Rodrigo Duterte exercised his right to remain silent. The last time the Philippine president crossed swords with the International Criminal Court (icc) in The Hague was in June, when its prosecu­ tors sought judges’ permission to investi­ gate him. At the time he reacted with dis­ missal: “Bullshit!” Yet when the court an­ nounced on September 15th that it would allow a full investigation into his war on drugs, which has killed untold thousands, Mr Duterte was uncharacteristically civil.

When he did eventually refer to the subject, it was without naming the icc. On September 21st the president told the un General Assembly that the Philippine jus­ tice system would deal with any excesses in his campaign. The president’s spokes­ man, Harry Roque, had earlier pointed out various obstacles to the court ever putting Mr Duterte or his law enforcers on trial.

Chief among them is the government’s re­ fusal to help investigators with their inqui­ ries. But that argument ignores the pos­ sibility that next year’s presidential elec­ tion may install a new administration that is less keen on shielding the drug warriors from international law.

The killings in question began around the time Mr Duterte became president, in mid­2016. His campaign rhetoric had been full of calls to kill methamphetamine deal­ ers to save the Philippines from narco­ statehood. When law enforcers duly began shooting suspects dead, Mr Duterte repeat­ edly urged them on, promising to protect them from repercussions.

As the corpses piled up, the killings came under the scrutiny of the icc’s prose­ cutors. Mr Duterte reacted to the court’s opening of a preliminary inquiry in 2018 by withdrawing the Philippines from the icc’s jurisdiction, though the country remained within its purview for another year. In an­ nouncing its decision this month to allow prosecutors to investigate, the court point­ ed out that it “retains jurisdiction with re­ spect to alleged crimes” that occurred “up to and including” the date the Philippines offi cially left, in March 2019.

Most of the killings followed a pattern.

Police offi cers would hunt down suspects and demand their surrender. According to the offi cial version, the armed, drug­ crazed traffi ckers would then open fi re, provoking the cops to retaliate and shoot the suspects dead—lawfully, because they would be acting in self­defence.

The Economist September 25th 2021

After the fi rst few hundred retellings of that sort of tale, an alternative version be­ gan to seem more probable. In this version, as related by witnesses, the police would burst onto the scene, gun down in cold blood the poverty­stricken addicts or small­time dealers they found there, then plant fi rearms and packets of metham­ phetamine on the slain victims to incrimi­ nate them. The police and other law­en­ forcement agencies admit that, by July 31st this year, 6,181 people had been killed in their operations against the drug trade since Mr Duterte became president. Hu­ man­rights monitors think the offi cial tal­ ly omits thousands more killings.

The constitution limits presidents to a single term, so Mr Duterte must step down when his ends in June. He has said he will run for vice­president instead. But holding that offi ce is unlikely to give him immuni­ ty unless he has a sympathetic successor; the two posts are elected separately.

One likely candidate for the leading role is his daughter, Sara Duterte, the mayor of the southern city of Davao, though she says she has no interest in running. Another is an estranged ally of Mr Duterte’s, Senator Manny Pacquiao, a recently retired world­ champion boxer, who has announced his candidacy. A potentially less sympathetic contender is Isko Moreno, Manila’s mayor.

Politicians more bitterly opposed to Mr Duterte and his war on drugs have yet to confi rm that they will run. If they do, some may try to win votes with campaign prom­ ises to bring justice to the families of the dead. Though Mr Duterte has remained consistently and unprecedentedly popular in the polls, Filipinos have misgivings about the scale of the violence in his war on drugs. The freedom of Mr Duterte and his enforcers may be at stake in the elec­ tion. That promises to make the contest unusually ferocious. The president’s new­ found civility is unlikely to last. n

Under the president’s protection

Press freedom in South Korea

Off ­target SEOUL

A plan to fight fake news could hobble real journalism

W

hen lawmakers from South Korea’s ruling Minjoo party discuss their plan to impose tougher penalties on the media for reporting “fake news”, they stress that they merely want to safeguard vulnerable citizens. “It’s the least we can do to protect the people from fake news,” one legislator told reporters earlier this month.

“We have to remember that our people’s basic rights and freedoms are more impor­ tant than the freedom of the press,” said another. The proposed changes to the Press Arbitration Act of 2011, the party argues, would improve the quality of reporting and increase the public’s trust in it.

Hogwash, says the conservative opposi­ tion, which quashed a fi rst attempt to pass the bill last month by threatening a fi libus­ ter. The proposal, it argues, is an attempt by the government to shield itself from criticism. Other observers appear to agree.

Last week, a coalition of activist groups in­ cluding Human Rights Watch called on legislators from all parties to reject the bill when it is put to another vote in the Na­ tional Assembly on September 27th.

The bill introduces new provisions al­ lowing individuals and small businesses to go after reporters and media organisa­ tions for, among other things, causing “emotional distress” by spreading false in­ formation either intentionally or as a re­ sult of “gross negligence”, for instance without fact­checking. Critics worry the vague wording of some of the clauses would give the authorities too much dis­ cretion to decide which reports qualify for corrections or damages. A letter from the un’s special rapporteur on freedom of ex­ pression, sent to the government in Au­ gust, warned that the law could be used to limit ordinary news reporting and criti­ cism of the government, and could see writers held liable for parody and satire or simply for expressing unpopular opinions.

The ruling party’s concerns are not en­ tirely unfounded. Like people everywhere, South Koreans are exposed to mountains of humbug. A noisy minority of mostly el­ derly right­wingers watch YouTube chan­ nels that spread misinformation about vaccines, American politics and President Moon Jae­in’s supposed chumminess with North Korea, the Chinese Communist Par­ ty, the devil, or all three. Even beyond the radical fringe, most people get their news from online aggregators whose algorithms reward sensationalist clickbait and which

012

The Economist September 25th 2021

take little responsibility for sourcing. The biggest newspapers have long­standing links to big conglomerates; the heads of public broadcasters change with the gov­ ernment. Unsurprisingly, less than a third of South Koreans say they trust the news.

But if legislators are indeed trying to solve these problems and bolster their de­ mocracy, they are going about it in a curi­ ous way, says Park Kyung­sin, a law profes­ sor and free­speech activist at Korea Uni­ versity in Seoul. Most fake news and con­ spiracy­mongering originates on social media, he notes. But the law only applies to

Asia

newspapers and broadcasters, leaving the main source of falsehoods untouched. Mr Park suspects the party’s real motive is a feeling of being under siege by the press: they fi nd it hard to accept that, in govern­ ment, “they’re being criticised by all jour­ nalists, not just the right­wing media”.

It is all the more surprising given that press freedom in South Korea has im­ proved signifi cantly since Mr Moon took power in 2017. South Korea climbed 30 places in a global press freedom index compiled by Reporters Without Borders, a watchdog, after his election. And it is an

unusual bill for a liberal democracy to pro­ pose, carrying as it does elements of simi­ lar laws passed in recent years by bossier places such as Singapore.

The many complaints have not fallen on deaf ears. Minjoo legislators have re­ sponded by drafting a revised version of the bill. But it still fails to resolve the main worry, that the law would unduly restrict speech. Given the party’s absolute majori­ ty, it is likely to pass, unless legislators de­ cide to withdraw it. If it does, South Korea will surely drop a few places in next year’s press­freedom ranking. n

Banyan Bamboo­shoots of resistance A campaign of civil disobedience to military rule in Myanmar is turning violent

U

ntil february 1st, when General Min Aung Hlaing mugged his coun­ try by ousting the civilian government, Zaw Maung Myint (not his real name) was just another urban youth with soft hands and a penchant for social media.

Not long ago, however, he slipped into the jungles of Myanmar’s borderlands.

There he has been receiving military training from one of the country’s po­ werful ethnic armies that have long waged war against the Tatmadaw, as the Burmese army is known, and even from defectors from the Tatmadaw itself.

Living on bamboo­shoots and fi sh paste, Zaw Maung Myint is training to be a sniper. “If someone asked me what I wanted most, I would say: ‘Guns!’”

As with Zaw Maung Myint, so with Myanmar: the country is descending further into violence. After arresting Aung San Suu Kyi and other leaders of the ruling National League for Democracy, the army began an orgy of bloodletting.

Security forces have already killed over 1,000 civilians in their attempt to snuff out defi ance of the junta. Ms Suu Kyi has disappeared from view, apart from the odd photograph from court as she an­ swers a raft of absurd charges, such as possession of walkie­talkies.

Gone, too, is her doctrine of non­ violent opposition that was at the heart of the pro­democracy movement she spearheaded during years of house ar­ rest, and which helped bring an elected government to offi ce in 2015 after de­ cades of military rule. On September 7th the National Unity Government or nug, which, though underground, claims to be the legitimate government of the land, declared a “people’s defensive war”.

Zaw Maung Myint is a member of one of several hundred “people’s defence forces” (pdfs) that have sprouted in

recent months. There is a David­and­ Goliath fl avour to the contest, notes Gwen Robinson, a longtime chronicler of Myan­ mar, in Nikkei Asia, a magazine. The Tat­ madaw controls a budget of billions, whereas the pdf volunteers rely on a covert lottery organised by the nug. Still, a lethal dynamic of violence is unspooling.

The Tatmadaw acknowledges over 800 deaths from pdf “terrorists”, both in the cities and in the rural heartlands. pdfs have blown up so many telecoms towers belonging to the army­owned Mytel (more than 80 at the last count) that the Tatma­ daw has taken to laying mines around them. Tatmadaw soldiers, brutalised by decades of fi ghting what Anthony Davis, a security analyst, calls Myanmar’s “forever insurgencies”, do not shy from reprisals.

The regime is training its own civilian militia of vigilantes to counter the PDFs. Most ominously, this dark struggle is leaching into Myanmar’s long­standing ethnic confl icts. Mr Davis argues in the Asia Times that pdf resistance to the Tat­ madaw along the western fl ank of central Myanmar is “fundamentally changing

Myanmar’s larger confl ict map”. The pdfs have made possible a broad corri­ dor linking big insurgent groups in the north of the country, notably the Kachin Independence Army (kia), with its ally the Arakan Army in Chin and Rakhine states in the west. The Arakan Army has agreed to a tactical ceasefi re with the Tatmadaw, the better to regroup. Huge caches of arms are fl owing down the corridor into its territories.

To secure support from Myanmar’s various ethnic groups and their associat­ ed militias, the nug has recruited leaders and politicians from such backgrounds.

Around half of the cabinet comprises ethnic minorities, in deliberate contrast to Ms Suu Kyi’s, which was dominated by the Bamar majority. The nug has been lobbying hard for the right to take up Myanmar’s seat at the un General Assem­ bly (a decision was put off ).

Though ethnic armies such as the Karen National Liberation Army and the kia are training a new wave of pro­de­ mocracy fi ghters, it would be wrong to imagine the nug and various ethnic groups morphing into a united front capable of taking on the Tatmadaw. As Min Zin of Myanmar’s Institute of Strat­ egy and Policy points out, no ethnic army has said it will answer the nug’s call to coalesce into a “federal army”. The lead­ ers of some ethnic groups want to pre­ serve the hard­won peace agreements they have with the Tatmadaw—along with their drugs, timber and jade rackets.

Others either harbour the suspicion that the nug remains a Bamar­centric project or, like the Arakan Army, think they can carve out more territory as the Tatmadaw tries to stamp out pro­demo­ cratic resistance in the heartlands. More confusion, more murk as a benighted country tips further into mayhem.

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China

The Economist September 25th 2021

Chinese-language media

Black, white and red all over

The Communist Party increasingly controls Chinese-language media outside the country

I

n 2019, at a conference in China of Chinese­language media fi rms from around the world, a senior offi cial deviated from his script to make his point clear. It was, he said, the “duty and mission” of such fi rms to help “retransmit” news from China’s state­controlled press at “impor­ tant times”. But the more than 400 dele­ gates from over 60 countries, including America, Australia, Britain and Canada, would have needed no reminding. Their presence itself was a sign that China had already succeeded in bringing much of the world’s Chinese­language media under its thumb. Widespread use of WeChat, a cen­ sored Chinese social­media platform, is helping it shut out those that are not.

China’s main spending on propaganda abroad has been on the foreign­language news services of its state­controlled me­ dia. In recent years it has lavished billions of dollars on building a global television network aimed at rivalling the bbc and cnn, as well as on the overseas expansion of its newspapers. But it has also been working hard to boost its infl uence among

media abroad that are not under the Com­ munist Party’s direct command. Those that use the Chinese language are among its main targets. There are tens of millions of ethnic Chinese living outside the country.

The party likes to think of them as poten­ tial defenders of its cause in an increas­ ingly China­sceptical West.

Chinese offi cials say there are more than 1,000 Chinese­language media out­ lets overseas. Some are newspapers that have long been partisan. Until the 1980s, the most widely circulated ones were run and owned by people from Hong Kong and Taiwan. They were staunchly anti­Com­ munist. Those with Taiwanese connec­ tions were usually backed by the Kuomin­ tang, the party that was toppled by the Communists in 1949 and took refuge on the island. During the Tiananmen Square → Also in this section 35 Climate-change promises 36 Chaguan: What to make of AUKUS

protests of 1989, the party grew alarmed by widespread support within the diaspora for the pro­democracy demonstrators. It began stepping up eff orts to bend Chinese­ language media abroad to the party’s pro­ paganda needs.

The party was helped by dramatic changes within the global newspaper in­ dustry as a result of the spread of the inter­ net and falling revenue from print adver­ tising. Many cash­strapped Chinese­lan­ guage outlets were delighted by off ers of paid content from Chinese state media with which they could fi ll their pages.

Owners of Chinese­language newspapers became all too willing to sell their stakes to tycoons with business interests in China, who were eager to show their loyalty to the party by regurgitating its propaganda.

In some cases China’s own state­owned fi rms became big shareholders. The major­ ity of Chinese­language news organisa­ tions outside China are now either directly or indirectly owned by the Chinese govern­ ment, says Rose Luqiu of Hong Kong Bap­ tist University. In February Sing Tao, a Hong Kong­based Chinese­language news­ paper that is widely read in America, was bought by Kwok Hiu­ting, the daughter of a mainland­Chinese property developer.

That prompted America to require the newspaper to register as a “foreign agent”, a designation that the Trump administra­ tion applied to several mainland­con­ trolled media as a way of highlighting their ties with the Communist Party.

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The Economist September 25th 2021

China has also used heavier­handed methods. Journalists and editors who have family members in mainland China are sometimes warned either directly or through their relatives to write copy that pleases the party. Businesses are pressed not to place advertisements in Chinese­ language outlets that criticise China. News organisations that try to remain indepen­ dent struggle to recruit journalists because potential candidates fear retribution, says the founder of one such outlet. Such orga­ nisations are subject to cyber attacks. To avoid diffi culties, many Chinese­language media practise self­censorship. Most of the big ones in America now read like the People’s Daily, the party’s offi cial mouthpiece.

Some still resist the party’s embrace. A handful are controlled by overseas­based practitioners of Falun Gong, a spiritual sect that the party banned in 1999 and calls an “evil cult”. The website of New Tang Dynas­ ty Television, or ntdtv, a Falun Gong­ backed outfi t, is more frequently visited in America than that of the offi cial Chinese state broadcaster, according to Alexa, an internet research company. There are also services funded by Western governments, such as the bbc, Deutsche Welle, Voice of America and Radio Free Asia, that publish Chinese­language news online. Some in­ ternational media have news websites in Chinese. Mandarin­speaking vloggers on YouTube broadcast political commentary that is critical of the Chinese government.

Several of them have hundreds of thou­ sands of subscribers.

To the party, however, the most crucial subset of the diaspora is made up of the millions of people who were born in China and have gone abroad to work or study, or as émigrés. This group is still outnum­ bered by foreign­born ethnic Chinese, ma­ ny of whom are the descendants of people who left China generations ago. But their ranks have been growing fast. China wants to ensure that they do not turn their backs on the party, not least because it fears their potential infl uence over friends and rela­ tives in China itself.

People in this group rely heavily on We­ Chat, a super­app that nearly everyone uses in China, to stay connected with peo­ ple on the mainland and communicate with other China­born contacts abroad. In Australia, over 60% of Chinese­language news consumers say they read most of their news on WeChat, according to a sur­ vey by two academics in that country: Wanning Sun of the University of Technol­ ogy Sydney and Haiqing Yu of rmit Uni­ versity. WeChat has almost 700,000 daily active users in Australia.

Many Chinese newspapers increasingly rely on WeChat to reach new readers. To make that easier, they often censor them­ selves. In China, WeChat purges content that the party does not like. The interna­

China

tional version of the app is less tightly con­ trolled, but it is diffi cult for news organisa­ tions considered hostile by the party to set up public accounts on it to push their arti­ cles to users. In December the platform even deleted a post by Australia’s prime minister, Scott Morrison, in which he said that Australia was a “free, democratic, lib­ eral country”. He was criticising a Chinese diplomat’s Twitter post of a faked image of an Australian soldier killing a child in Af­ ghanistan. WeChat said it had removed Mr Morrison’s message because it had used “misleading words” to “distort historical events and deceive the public”.

In May China’s leader, Xi Jinping, called for a bigger push to explain to people abroad “why the Chinese Communist Party is capable, why Marxism works and why socialism with Chinese characteristics is good”. He has found willing assistants. n Climate-change policy

Low-hanging fruit China has agreed to stop financing coal projects abroad. Will it do more?

I

n a speech by video­link, Xi Jinping, China’s president, told the un on Sep­ tember 21st that his country would stop supporting new coal­power projects over­ seas. Since 2013, 95% of the funding for coal­fi red power plants that came from outside the countries where the plants are located has come from China, Japan and South Korea. In April South Korea vowed to end state­backed fi nancing of coal plants abroad; in June Japan pledged to do the same. Climate campaigners are celebrating China’s decision to follow suit.

By some estimates, 70% of all coal plants being built today rely to some de­ gree on China’s cash. Cutting off this source will hobble the building and opera­ Scaling the peak CO2 emissions*, gigatonnes per year 10 China 8 6 United States India

2

Russia 2000

05

Source: Global Carbon Project

10

15

4

0 19

*Excludes emissions from ships and aircraft

tion of such projects in poor countries, where demand for power is often diffi cult to meet without foreign help. But by men­ tioning only overseas coal, Mr Xi glossed over China’s own dependence on the stuff .

Last year, the country’s power plants pro­ duced over half the world’s coal­generated electricity. It continued adding new coal­ fi red power capacity at a pace of roughly a new coal plant a week. China is already moving away from funding coal plants abroad anyway, mostly because of the fall­ ing price of renewable energy.

However, the gesture is at least a sign that China does not want to be seen as a spoiler of global climate­change eff orts.

John Kerry, President Joe Biden’s climate envoy, had been urging China to make a pledge of this kind. But China had warned that climate­change co­operation with America could be jeopardised by tension in the two countries’ relationship. Now ton­ gues are wagging about whether China might have more good news to announce at cop26, the un climate summit that is due to be held in Glasgow in November.

(Mr Xi is unlikely to attend in person— since the pandemic began, he has shunned travel abroad.)

The speculation mainly surrounds Chi­ na’s plans for cutting emissions of green­ house gases. The most tantalising pos­ sibility is that the country will move for­ ward the date by which it aims for its car­ bon emissions to reach a peak: currently 2030. (A year ago, Mr Xi also said China would strive for “carbon neutrality”—a bal­ ance between carbon emissions and car­ bon reduction—by 2060). Given that China is the world’s largest emitter, an earlier peak could make a big diff erence to the world’s climate prospects, especially if it is followed by a marked decline.

Many analysts argue that China could, with eff ort, achieve an emissions peak in 2025. But Li Shuo, an analyst for Green­ peace, an environmental ngo, says China is unlikely to make a formal commitment to this eff ect. It would require shutting down many coal plants and overhauling the current fi ve­year economic plan, which took eff ect this year.

A g20 summit in July gave a fl avour of things to come. Italy presided over the event and was keen to extract a commit­ ment to phase out coal power. China, among others, was reluctant. It also resist­ ed a push for faster decarbonisation to pre­ vent more than 1.5°C of global warming above preindustrial temperatures (the Par­ is agreement on climate change, reached in 2015, calls for the stabilisation of tem­ peratures somewhere between 1.5°C and “well below” 2°C). But with thermometers showing roughly 1.1­1.2°C of warming al­ ready, it would take a Herculean eff ort to achieve that goal. China knows much of the task would fall on its shoulders. n

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The Economist September 25th 2021

Chaguan How AUKUS is viewed from Beijing

To China, the new alliance is proof that America’s plan is containment

F

or chinese leaders, the rows about aukus, a new security pact between America, Australia and Britain, confi rm cherished prejudices about the Western world. China has always believed that America’s network of global alliances is a cover for hegemony, even if American leaders off er warm words about defending uni­ versal values, standing up for friends and opposing “attempts by stronger countries to dominate weaker ones”, as President Joe Bi­ den did at the un on September 21st.

Chinese suspicions are, in this case, bolstered by French anger over aukus, which was born out of Australia’s decision to break a deal to buy diesel­electric submarines from France, in favour of buying nuclear­powered ones from America. When a French gov­ ernment minister accused Britain of returning to the American fold and “accepting a form of vassal status”, that was a vindication for China. Indeed, the Frenchman’s attack could be printed, with­ out alteration, in the People’s Daily, a mouthpiece of China’s Com­ munist Party. For all that, at least to date, the Chinese offi cial re­ sponse has been a study in caution, avoiding loud expressions of solidarity with France. That is revealing, because China normally praises French leaders when they call for Europe to pursue “strate­ gic autonomy” in its foreign and security policies. Chinese dip­ lomats know that France’s vision of autonomy is code for avoiding over­reliance on America.

Instead, China has so far pursued narrower, rather technical lines of attack on aukus, related to the eight nuclear­propelled submarines that Australia is to buy from America. China’s ambas­ sador to the International Atomic Energy Agency, a nuclear watch­ dog, accused America of undermining non­proliferation work by transferring nuclear know­how and weapons­grade uranium to Australia, saying this would make it harder to stop Iran and North Korea from seeking similar technologies. The foreign ministry in Beijing added some tut­tutting about countries forming small cliques. By the standards of recent America­bashing in China, such grumbles barely count as throat­clearing.

After speaking to various wise owls in Beijing, both Chinese and foreign, Chaguan has explanations to off er. It is true that aukus confi rms prejudices dear to Chinese offi cials and scholars.

The fi rst of these is that power is the driver of geopolitics, even if

smaller countries talk of putting their faith in multinational co­ operation, the rules­based order and other pretty phrases. If Aus­ tralia would rather be America’s vassal than France’s partner, that merely confi rms China’s bleak, might­makes­right worldview.

That view is refl ected in lectures that China delivers to envoys in Beijing. With tiresome regularity, it is the lot of Western ambassa­ dors to be informed that, if their small or midsized home country has dared to challenge China, it can only be because their govern­ ment is foolishly trying to please America, whose hand is behind all of China’s troubles.

The aukus pact also reinforces a talking point that the Western world is far from united about China, especially when it comes to speaking out about questions of principle, such as the crushing of Hong Kong’s democratic opposition or the repression of Muslims in Xinjiang. These are mostly Anglo­Saxon obsessions, Chinese diplomats and scholars like to suggest. Alas, they sigh, Americans, the British and their friends in the Anglosphere think it is their birthright to run the world, like some gang of fi nger­wagging mis­ sionaries or sunburnt colonial administrators. Chinese offi cials praise leaders whom they see as more focused on business inter­ ests, such as Angela Merkel in Germany.

Still, China has not hastened to woo France in its hour of wrath.

For one thing, China may see a benefi t in letting Western powers feud, uninterrupted. For another, France’s furious response is a bit undignifi ed. In Chinese culture, a public tantrum may signal nao xiu cheng nu, or “from shame to rage”, meaning the specifi c form of high­decibel meltdown staged by someone facing humiliation.

Ticking off reasons why France might be cross, a Chinese scholar lists the cancelled contract worth tens of billions of dollars, and a “loss of face” caused by Australia’s hint that French submarines are not capable enough to deter China.

Nor is aukus hailed as a chance to divide the West. Wang Yiwei, director of the Institute of International Aff airs at Renmin Univer­ sity in Beijing, notes China’s relatively weak anti­submarine capa­ bilities. “For Australia to have nuclear submarines is very danger­ ous for China,” he says. “They are not needed for Australia’s na­ tional defence. This is about China.”

An arms race looms Chinese leaders have a double view of America. They remain ex­ ceedingly wary of American areas of strength, from its armed forc­ es to its high technology. Chinese leaders can see for themselves America’s robust economic growth, compared with Europe or Ja­ pan. Yet they increasingly believe that Western societies are grow­ ing decadent. “The key competition between China and the us is about domestic governance,” explains Professor Wang, before list­ ing America’s failings, from economic and racial inequalities to its handling of covid­19. “In the view of the Chinese ruling elite, us domestic governance is in serious trouble,” he says.

In Beijing it is seen as enraging that this failing ex­hegemon re­ mains strong enough to defy or dream of containing China. Mr Bi­ den is called a weak, transitional fi gure. Chinese diplomats have treated his envoys, including his secretary of state, Anthony Blin­ ken, and climate envoy, John Kerry, with studied belligerence. Un­ der President Xi Jinping, a stern autocrat, China is impatient with being criticised. It rejects Mr Biden’s assertion that the relation­ ship can be at once sharply competitive and co­operative when needed. Above all, China is sure that America is trying to create alliances to stop its rise. A cautious initial reaction to aukus should not be misread. Discretion is not the same as calm. n

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→ Also in this section 38 Prayer and profit in Nigeria 39 The death of Abdelaziz Bouteflika 40 Lebanon’s energy crisis

Inequality in South Africa

Not so black and white JO HANNESBURG

The racial income gap has narrowed since 1994. But the gains went largely to the black elite miller, a photographer, began Johnny taking drone footage of South African cities in 2016. Shots from Cape Town, Dur­ ban and Johannesburg depict adjoining neighbourhoods—but diff erent worlds. On one side of a photograph might be a ver­ dant suburb spattered with azure swim­ ming pools; on the other a slum with tight­ ly packed shacks.

Economic research into South African inequality has produced a less granular picture. Reports from the World Bank and other bodies draw on benchmark mea­ sures of income inequality, such as the Gi­ ni coeffi cient, to conclude that South Afri­ ca is one of the world’s most unequal coun­ tries. But they often say little about wealth, the role of government policy or, crucially, what has happened to the gap between blacks and whites since the end of apart­ heid in 1994.

Two recent papers from the academics Aroop Chatterjee, Léo Czajka and Amory Gethin fi ll some of these holes. In doing so they off er perhaps the most detailed pic­ ture of the haves and have­nots in South

Africa in the democratic era. The research is crucial to understanding the profound discontent felt by many South Africans.

In their latest paper the economists combine household surveys, tax data and national accounts to track incomes from 1993 to 2019. They start by noting that, be­ fore taxes, the share of income going to the 1

Big changes–at the top South Africa, share of black and white earners By income group*, % of total

Top 10%

Top 1% 100

100

Other 75 White

75 White

50

50

25 Black 198084

200004

25 Black

0 19

198084

200004

0 19

*Five-year average. 2019 single year Source: “Inequality, Redistribution, and Growth: Evidence from South Africa, 1993-2019”, Gethin et al., 2021

top 10% of earners grew from 57% to 66%— levels higher than in any other comparable country. The average income of the top 1% increased by 50%, while that of the poorest half fell by more than 30% after infl ation.

Even after taxes and transfers are included, the share of income going to the top 1% is roughly the same as it was at the end of apartheid—nearly one­fi fth.

Since 1994 the ruling African National Congress (anc) has raised taxes and intro­ duced welfare grants for pensioners and children. It has expanded public health care and education, which researchers count as “in­kind” income for the benefi ­ ciaries. On paper these transfers largely make up for the loss in pre­tax incomes for the poorest half of South Africans.

Yet it would be wrong to think that so­ cial policies have pushed back the tide of inequality. For a start, the authors note that regressive consumption taxes such as vat mean the poorest have high eff ective tax rates. The child­support grant is not enough to buy nutritious food. Unemploy­ ment benefi ts are paltry and patchy; hence the growing campaign by ngos for a uni­ versal basic­income grant. The “income”, as defi ned by the researchers, that the poor receive from public services is not the same as a pay cheque. And given the poor quality of schools and hospitals, it may be valued less by South Africans than by the authors of the study.

One seemingly positive trend identifi ed by the economists is the narrowing of the

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Middle East & Africa

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underlying racial income gap. In the 1990s whites earned about seven times more than blacks. By the end of the 2010s they made about four times more.

But this narrowing is “mostly attribut­ able to the emergence of a new Black elite”, notes the paper. Once in government the anc introduced affi rmative­action laws, which have helped increase the share of well­paid jobs held by blacks, especially in the public sector, where trade unions have won above­infl ation pay rises. Another policy, called “black economic empower­ ment” has steered business towards black­ owned fi rms and enriched a small number of black investors.

Partly as a result of policies like these, the share of blacks in the top 10% of earn­ ers has risen sharply (see chart 1), though it is still less than their share of the overall population (81%). Poorer blacks have done less well. While the gross income of the top 10% of black earners has tripled, that of the bottom 50% has fallen (see chart 2). When the researchers looked only at the ratio of white earnings to those of the bottom 90% of black earners, the racial gap had in­ creased slightly since apartheid.

An earlier paper by the same authors found similar trends. It noted that concen­ tration of wealth in South Africa is greater than in any other country for which there are comparable estimates. The 3,500 households making up the top 0.01% have more net wealth than the bottom 90% combined. The share of wealth held by the top 10% is roughly the same as at the end of apartheid; that owned by the top 1% and 0.01% has, if anything, risen.

Many of the inequalities of the present stem from the white­supremacist past, when blacks were systematically denied a good education and prevented from accru­ ing wealth. Today whites on average are eight times richer than blacks—twice as large an overall gap as for income. Inheri­ tance, notes Mr Gethin, helps old inequal­ ities endure.

Taken together, the two papers under­ 2

Failing the bottom half South Africa, % change in income*, 1993-2019 Black Income group

Asian -50

Coloured 0

50

White 100

150

200

Top 10%

Middle 40%

Bottom 50% Source: “Inequality, Redistribution, and Growth: Evidence from South Africa, 1993-2019”, Gethin et al., 2021 *Cumulative

line not just the legacy of white rule, but al­ so the anc’s failure to help most black South Africans overcome it. Redistribution and elite empowerment are no substitute for growth and jobs. Unemployment, as work led by Murray Leibbrandt of the Uni­ versity of Cape Town has repeatedly found, is at the heart of South African inequality.

South Africa’s gdp per person has been de­ clining since 2015—a result of corruption and bad policies. In the second quarter of

2021 joblessness reached a record 34.4%.

On November 1st South Africa will hold local elections. For the fi rst time, the anc may win less than half of the vote in a na­ tionwide contest. If that happens, it will be easy to point to the party’s dysfunction, or a surge in opposition turnout following civil unrest in July. Yet there are deeper forces at play. The party of Nelson Mandela promised “a better life for all”. So far it has delivered a much better life for a few. n

Nigeria

Sum of a preacher man

CANA ANLAND

Nigerian megachurches practise the prosperity they preach

“T

he lord loves a cheerful giver,” pro­ claims a preacher as she warms up the congregants for Bishop David Abioye’s third service of the day in the 15,000­seater Living Faith church near Abuja, Nigeria’s capital. “As you drop your off erings today, your fi nancial captivity will be turned around for good,” she promises. Slipped in among the Bible verses are instructions on how to pay by cheque or online. What the Lord thinks of your correspondent’s reluc­ tant gift is left unsaid.

As ushers wielding lime­green baskets take the off erings, a choir croons, “I’m re­ stored and I’ve been rewarded.” Mr Abioye, resplendent in a pinstripe suit and gold tie, explains how God repays prayer with hard cash. “This week people will be giving to you,” he proclaims. Congregants jump up and cheer. “As I’m speaking they are alrea­ dy looking for your telephone number,” he shouts. All this, he says, is thanks to the “purchasing power” of Jesus’s blood.

Mr Abioye is a pastor in a Pentecostal empire known as Winners Chapel. It is led

by Bishop David Oyedepo, who practises the prosperity he preaches. He zips around in private jets. He once dismissed a report that he was worth $150m as an “insult” and “too small”. His business model combines the power of the pulpit with the slickness of corporate marketing. His books include “Understanding Financial Prosperity” and “Satan Get Lost!”

Like many charismatic pastors, in Nige­ ria and elsewhere, he preaches that faith will bring material rewards, and that the faithful should express their devotion by tithing, ie, giving a tenth of their earnings to the church. Some millionaire pastors hint that their wealth is evidence of their piety. The stacks of cash sent up the chain from their church branches may help, too.

“There really isn’t a line between what belongs to the pastor and what belongs to

The rewards of prayer

the church,” says Ebenezer Obadare, a so­ ciology professor at the University of Kan­ sas. Christian forgiveness seems in short supply for those who fail to deliver. In July a pastor in a branch of Winners Chapel said he was sacked for failing to raise enough cash. Winners Chapel says it was because he didn’t attract a larger fl ock.

Some holy men have earthly business interests. Pastor Enoch Adeboye’s church has a construction company, a window factory and hundreds of holiday chalets at its Redemption City religious camp. Pastor Chris Oyakhilome, a televangelist, runs satellite broadcasting channels in America and Britain and an online shop, which ac­ cepts payments in 120 currencies. Bishop Oyedepo’s church has a 10,500­acre cam­ pus called Canaanland which has a bot­ tled­water factory, bank and petrol station, as well as a palatial home for the bishop.

Several Nigerian churches own univer­

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The Economist September 25th 2021

sities. These are popular with parents, partly because many of Nigeria’s public universities are mediocre. Covenant Uni­ versity in Canaanland has strict rules: mo­ bile phones are banned. It also has an im­ pressive sports stadium, high­tech lecture halls and taekwondo classes. Posters vaunting its academic rankings adorn the walls, alongside photos of Bishop Oyede­ po. The university says 98% of graduates land jobs or employ people themselves within two years of graduating.

Yet for many church members, it is un­ aff ordable. The young staff er who showed your correspondent around the campus longed to study there, but his family, who have attended the church since 2003 and tithed till it hurt, could not pay the fees. It was cheaper to send him to university in Ghana. The university says it provides val­ ue for money, and that Bishop Oyedepo’s foundation gives scholarships to students at Covenant University and other universi­ ties. Still, at Covenant, which has at least 6,000 undergraduates, the foundation cur­ rently provides only about 30 scholarships.

A worker at another Winners Chapel church laughs when asked if his salary is enough to send his children to the church school. Matthew, a parent who attends the 100,000­seater Glory Dome of a diff erent megachurch in Abuja, says the church school is too expensive for his children.

“My father went to a missionary school for free,” he says. “Why are we not doing the same?” The reality, says Mr Obadare, is that these are “moneymaking enterprises”.

Covenant says it reinvests its earnings in the university. But “the university is owned by the church,” adds the vice­chan­ cellor, Abiodun Adebayo. Does the church expect some return on its investment?

“You grow until the time when you are big enough to also be supporting the church,” says Mr Adebayo curtly.

The blurry lines between mega­ churches and their businesses matter for tax reasons. Churches are not taxed. In the­ ory their businesses are. But fi guring out where churches end and their businesses begin is not easy.

Critics do not mince their words. The logic of prosperity churches is similar to that of Ponzi schemes, says Mr Obadare, but with the added advantage that when people do not get rich, pastors can promise that their riches will come in the next life.

Criticism of these beliefs may be expected to come from intellectual institutions such as universities, he adds, but in many cases these have bought into the churches’ view of the world. The result in Nigeria, where more than 80m people live on less than $1.90 per day, is that church “mem­ bers are getting poorer and poorer”, says Francis Falako, a professor of religious studies at the University of Lagos. “And the pastors are getting richer and richer.” n

Middle East & Africa

Algeria

Bye-bye, Bouteflika The former president is dead, but his regime lives on

F

inally the rumours are true. For years Algerians whispered about the health of Abdelaziz Boutefl ika, their president from 1999 to 2019. After suff ering a stroke in 2013 he was rarely seen in public, often leading to speculation that he was dead. When the whispers grew too loud, offi cials would roll him out in his wheelchair to sit before the cameras, a vacant look in his eyes. The people wondered who was really in charge.

By 2019 they had had enough of the charade and toppled the old man.

Mr Boutefl ika died on September 17th, aged 84. The young people who make up most of Algeria’s population will probably remember him as that decrepit president— and lament that little has changed since his ousting. It is telling that the govern­ ment buried him at a cemetery for inde­ pendence fi ghters, with few of the honours accorded to past leaders.

Older Algerians may remember Mr Bou­ tefl ika more fondly. He was barely an adult when he joined the National Liberation Ar­ my in the war against French rule. A year after independence in 1962, he became Al­ geria’s fi rst foreign minister, still in his mid­20s. He would hold the position for 16 years. Witty and dashing in his three­piece suits, Mr Boutefl ika helped establish the country as an infl uential member of the Non­Aligned Movement and a beacon of the anti­colonial struggle, earning it the nickname “the Mecca of revolutionaries”.

Che Guevara visited Algeria hoping to stir revolutions in Africa. A young Nelson

Mandela received military training from Algerian soldiers. Mr Boutefl ika, in the role of president of the un General Assembly, invited Yasser Arafat to address the body in 1974, a historic moment for the Palestinian cause. When Carlos the Jackal took oil min­ isters hostage in an attack on opec head­ quarters in Vienna in 1975, the terrorist de­ manded to be fl own to Algiers. Mr Boute­ fl ika met him and negotiated the release of some of the hostages.

Passed over for the presidency in 1979, Mr Boutefl ika left Algeria to avoid corrup­ tion charges (which were eventually dropped). He returned but kept a low pro­ fi le during Algeria’s civil war in the 1990s, when some 200,000 people were killed in fi ghting between Islamists and the army.

In 1999 the ruling cabal of generals and se­ curity men, known as le pouvoir (the pow­ er), turned to him. Five months after win­ ning a rigged presidential election, Mr Boutefl ika pushed through a referendum on national reconciliation that granted amnesty to Islamists and militia members.

Criticism of the army’s conduct was pro­ hibited. Many credit him for guiding Alge­ ria out of its “black decade”.

The regime would invoke the civil war and the need for stability whenever it wanted to justify its repression. Unfair elections were held—Mr Boutefl ika won four of them. Le pouvoir siphoned off the country’s vast hydrocarbon wealth, while the young struggled to fi nd jobs. The pub­ lic’s frustration had been growing for years when the regime announced in 2019 that Mr Boutefl ika would seek a fi fth term. Tens of thousands of protesters took to the streets, chanting “Bye­bye, Boutefl ika”. Fi­ nally the regime gave in. Slumped in his wheelchair, the president passed his letter of resignation to a colleague. It was the last time most of the public would see him.

Yet any hope that Mr Boutefl ika’s resig­ nation would bring real change has dimmed. The army remains the dominant power in Algeria. Abdelmadjid Tebboune, a former prime minister seen as the gener­ als’ choice, was elected president in 2019.

The poll was shunned by most Algerians.

Meanwhile, the number of political pris­ oners is thought to be rising. The govern­ ment has tried to sow discord in the pro­ democracy movement, known as the Hirak. It blames opposition groups and Mo­ rocco, with which it recently cut diplomat­ ic ties, for fomenting unrest.

Sometimes the government still uses Mr Boutefl ika, but now as a scapegoat. Co­ vid­19 has taken a toll and the economy continues to stall. With few answers, offi ­ cials also point to the villainy of France or other foreign conspirators. Most Algeri­ ans, born after independence, are un­ moved by these tired anti­colonial narra­ tives. They wish Mr Boutefl ika’s regime would expire with him. n

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Lebanon’s energy crisis

Power politics

DUBAI

Friends and neighbours have off ered to help, but mostly to help themselves

T

he celebrations seemed fi t for a con­ quering hero returning home. As the trucks crossed the border, women sho­ wered them with fl ower petals and rice.

Banners hailed the mastermind of the op­ eration for “breaking the siege” imposed on his country by malevolent foreign pow­ ers. A few men fi red bullets and rocket­ propelled grenades in the air—a particular­ ly ill­advised form of salute given that the trucks were carrying 4m litres of diesel.

It says much about today’s Lebanon that a few petrol­tankers were greeted with such jubilation. The fuel is meant to ease an energy crisis that has paralysed the country. But 4m litres is less than a day’s consumption. Moreover, it will exacerbate the long political crisis in Lebanon. The shipment, arranged by Hizbullah, a Shia political party and militia, came from Iran to the port of Baniyas in Syria (see map), where it was transferred to trucks. It vio­ lates a range of American sanctions on Iran, Syria and Hizbullah itself. America, in turn, has put forward its own plan to keep the lights on in Lebanon—yet that propos­ al, ironically, will also fall foul of American sanctions on Syria.

Lebanon needs fuel, whatever the source. It is two years into a fi nancial crisis that has left the currency all but worthless.

Foreign reserves plunged from $38bn in 2019 to $15bn this summer. The govern­ ment is struggling to import fuel and make it aff ordable for an impoverished popula­ tion. It has steadily reduced subsidies.

Twenty litres of petrol now cost 30% of the monthly minimum wage.

That is when fuel is available, which of­ ten it is not. Petrol queues stretch for kilo­ metres. At home many Lebanese receive just two hours of electricity from the grid, while back­up generators that long fi lled the gaps have run out. Water authorities and the telecoms monopoly have cut ser­ vice in some areas because they cannot power pumps and mobile­phone towers.

None of this is caused by a Western “siege”, as Hassan Nasrallah, the leader of Hizbullah, is fond of claiming. American sanctions on Lebanon are mostly limited to his party. In fact, some of Lebanon’s en­ ergy woes can be traced to Hizbullah’s role as a guardian of a corrupt political system.

Founded in the 1980s, Hizbullah is now the most powerful force in Lebanon, with a militia that outguns the army and an ever­ stronger position in politics (it helps to be

Baniyas

CYPRUS

SYRIA

Maritime boundaries Mediterranean Sea

Tripoli

Beirut

LEBANON Zohr gasfield Leviathan

Damascus

ISRAEL West Bank

JORDAN Amman

Gaza Strip

EGYPT

Arab Gas Pipeline

100 km

able to assassinate your critics). Yet it in­ sists that its focus is national defence. Do­ mestic policy, it says, falls to others.

But some of those others are its closest partners. In recent years it has forged an al­ liance with the Free Patriotic Movement, a Christian party led by Gebran Bassil, the president’s son­in­law, which has con­ trolled the energy ministry for a decade. Mr Bassil served as minister from 2009 to 2014. He pushed a widely criticised scheme to build a power plant in Selaata, a Chris­ tian­majority village that is not even con­ nected to the national grid. He also hired power plants on barges, which were meant

Barely enough energy to celebrate

as a stopgap but have become permanent, at great fi nancial and environmental cost.

Loth to let Hizbullah pose as a saviour, America and its friends have off ered their own energy plan, which relies on the 1,200km Arab Gas Pipeline. Though built to export Egyptian natural gas to other Arab states, for much of its history it has sat idle.

After the Egyptian revolution in 2011, mili­ tants repeatedly bombed the feeder pipe­ line. Then Egypt ran into gas shortages caused by falling output and surging de­ mand. By 2015 it had halted exports and be­ come a net importer.

The picture is quite diff erent today. The eastern Mediterranean is awash in natural gas thanks to massive fi nds such as the Zohr fi eld in Egypt, which went online in 2018, and Israel’s Leviathan, which started production in 2019. Last year Israel began piping gas to Egypt, some of which can be liquefi ed and shipped to customers in Eu­ rope. (A few Lebanese wags have asked how their government will ensure that none of the gas arriving through the Arab pipeline contains Israeli hydrocarbons.)

Yet this American plan also faces Amer­ ican obstacles. Since the pipeline crosses Syria, Bashar al­Assad’s regime stands to collect transit fees. Rather than paying in cash, Syria could be paid in kind. One op­ tion would see it receive electricity from Jordan, which has a surplus, to help ease blackouts in regime­held territory. Either approach, however, would infringe the Caesar Act, an American law passed in 2019 which prohibits business with the regime.

Much of this is hypothetical. Syria must fi rst fi x its decrepit infrastructure, which will take months. But it underscores the fecklessness of an America that is hooked on using sanctions as a weapon. The Cae­ sar Act was meant to give Mr Assad a choice between political reform and economic isolation. He chose the latter—not surpris­ ing for a man who destroyed his country to stay in power. But America is struggling to keep him isolated. Egypt, Jordan and the Gulf states—all American partners—are re­ storing ties. Now Syria is set to become Lebanon’s energy broker.

As for the Iranian fuel shipments, they violated a host of American sanctions. Yet short of seizing tankers at sea, America had no power to stop them. It could impose sanctions on the Lebanese state (which in­ sists that the imports were a private trans­ action), but that would only add to the country’s misery. Sanctions have already failed to change the behaviour of regimes in Syria and Iran, and America will fi nd it ever harder to enforce them consistently.

Lebanon has long been buff eted by larg­ er geopolitical struggles. A few tankers of fuel from Iran, or a trickle of gas from Egypt, will not repair its long­mismanaged energy industry. As ever, though, fi xing Lebanon’s problems is not the real goal. n

SPECIAL REPORT: Germany → September 25th 2021 3 A big hole 5 Not enough investment 6 The car industry 8 Demography 9 Young Germans 9 EU politics 10 Foreign policy 12 The future

After Angela

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Solve problems on the world stage— by connecting with the people on ours.

Economist Impact combines the rigour of a think-tank with the creativity of a media brand to engage an influential global audience. To find out more, visit www.economistimpact.com

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Special report Germany

The Economist September 25th 2021

After Merkel

Angela Merkel’s departure will leave a big hole in Germany—and much for her successor to do, says Tom Nuttall

I

n june a newly surfaced segment of a German talk show from 1997 set the internet alight. The clip shows Angela Merkel, a fresh­faced environment minister in Helmut Kohl’s government, explaining the urgency of action on climate change. Her fellow panellists listening closely, Germany’s future chancellor says de­ lay will only incur higher costs. The dangers of failure, she warns, include hunger, drought and the mass movement of refugees.

The clip highlights a contradiction familiar to observers of Mrs Merkel’s 16­year reign, which will end once a new coalition is formed after the election on September 26th. On one hand is the diligent scientist­stateswoman, blessed with the ability to under­ stand complex issues and explain their consequences. On the oth­ er is the hesitant politician who struggles to convert analysis into action. A quarter of a century on, Germany emits more carbon di­ oxide per head than most other eu countries, and relies on fossil fuels for 44% of its electricity. After the clip emerged Mrs Merkel, at her fi nal annual press conference as chancellor, conceded that she had failed to act decisively on climate change.

The pattern keeps recurring. Campaigning for the chancellery in 2005 Mrs Merkel promised to slash bureaucracy and promote innovation, pledges that still appear in the manifesto of her Chris­ tian Democratic Union (cdu). Her biennial speeches at the Mu­ nich Security Conference were compelling tours d’horizon of the global security landscape but rarely heralded meaningful changes in German foreign policy. During the covid­19 pandemic the chan­ cellor was a solid, reassuring presence, but she struggled to im­ pose her will on the restive premiers of Germany’s states.

Mrs Merkel has at times seemed more monarch than chancel­ lor. She will leave offi ce with sky­high approval ratings. Three of the four coalitions she led were “grand” ones with the Social Democratic Party (spd), which suited her centrism but tranquil­ ised politics. She has so dominated the centre that outright criti­ cism of her has come to seem almost lèse-majesté. That has in­ spired a wave of free­speech martyrs on the conservative fringes, the closest Germany gets to a culture war. In Europe Mrs Merkel has been the indispensable leader. Beyond it, her stout defence of liberal values and her modest demeanour have been reassuring in an age of noisy populism and nationalist showmen.

As Mrs Merkel prepares to leave offi ce some have wondered if a Wechselstimmung (mood for change) is taking hold in her country.

The ascent since the 2017 election of the Green Party, which wants to upend strict public­debt rules and rethink foreign policy, seems to off er evidence for this. In May the Bertelsmann Foundation found that a record two­thirds of voters wanted signifi cant politi­ cal change, and almost as many wanted a new government.

Some recent events have shaken the faith of voters in their state and its institutions. One was the chaotic management of the second wave of covid­19, which undercut a narrative of success during the fi rst in 2020. Then came catastrophic fl oods in parts of western Germany in July, where the apparent negligence of a few local politicians may have contributed to a death toll of almost 200. The debacle in Afghanistan, where 150,000 Bundeswehr troops had served since 2002, was also hard to swallow.

Yet for all this, a Wechselstimmung is not evident. Germany has

3

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Special report Germany

The Economist September 25th 2021

inent’s heart, and one of the chancellor’s A chancellor’s progress priorities has been to resist forces driving Germans who think Angela Merkel is doing a good job, % polled its governments apart. She has forged use­ ful relationships with fi gures as disparate Wins election, forms Wins re-election, Re-elected, forms Wins fourth term grand coalition with SPD coalition with FDP new grand coalition Renews grand coalition as Alexis Tsipras, the far­left prime minis­ 100 100 Approves EU migration Bundestag Debt brake inserted ter who nearly took Greece out of the euro, Euro-zone crisis, Covid-19 deal with Recep approves gay into constitution 90 90 and Viktor Orban, the autocratic leader of Greek & other pandemic Tayyip Erdogan marriage bail-outs Hungary (who will take over Mrs Merkel’s 80 80 mantle as longest­serving eu leader).

70 70 Politically, Germany seems an island of stability in a jumpy world. Although this Declares “Wir schaffen Lehman Brothers 60 60 das” in refugee crisis election may be the most open for a gener­ Backs collapse begins €750bn financial crisis Ditches nuclear power ation, none of the parties likely to enter 50 50 EU recovery Steps down after Fukushima government disagrees over such funda­ as CDU leader package First visit Says “If euro fails, 40 40 mentals as the social­market economy or to China Europe fails” the commitment to the eu. Contrast this 2005 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 with France, which may again fl irt with France: presidents Marine Le Pen in next year’s presidential Nicolas Sarkozy François Hollande Jacques Chirac Emmanuel Macron election; perennially unstable Italy, where United States: presidents populist parties command near­majority Barack Obama Donald Trump Joe Biden George W. Bush support; or Poland, a deeply polarised Britain: prime ministers Tony Blair Gordon Brown David Cameron Theresa May Boris Johnson country led by a government undermining Sources: Forschungsgruppe Wahlen; The Economist the rule of law.

Few of Europe’s crises have upset Ger­ mans’ security or given them reason to weathered the pandemic better than most. The death rate was low push for change. Political chaos, overspending or trade defi cits are and the government’s fi scal response, including policies like the others’ problems. Growth in the Merkel era was solid, if rarely much­imitated Kurzarbeitergeld furlough scheme, cushioned the spectacular, and when challenged German institutions have been economic impact. The economy is set for one of Europe’s more ro­ robust. Five years on, there are even grounds for optimism over bust recoveries. More than two­thirds of Germans say their eco­ the integration of migrants from 2015­16. And it is not modern Ger­ nomic situation is good. Nor did the fl oods mark an infl ection many’s habit to engage in military adventurism abroad. point. Rather, a lacklustre campaign punctuated by trivial rows Critics are wary of handing too much credit to Mrs Merkel. suggests that none of the parties, including the increasingly cau­ “Germany’s economic success was more luck than policy,” says tious Greens, sees much mileage in promising rupture.

Marcel Fratzscher, who leads the German Institute for Economic Just as German companies excel at incremental innovation but Research (diw) in Berlin. Conditions were propitious. China’s ac­ struggle with the disruptive sort, change in public opinion is slow cession to the World Trade Organisation in 2001 opened a vast and hard to detect. Spotting this is one of Mrs Merkel’s strengths, market for mighty German exporters. The eu’s eastward expan­ aided by her offi ce’s relentless polling and focus­grouping. Her sion a few years later created a pool of cheap labour and extended policy shifts, when they came, were usually subtle but on occasion supply chains, and a source of skilled, working­age immigrants. decisive: nuclear power, gay marriage and, most recently, com­ Controversial labour­market reforms pushed by Gerhard Schrö­ mon European Union debt. der, Mrs Merkel’s predecessor, kept unemployment down. Amer­ Her riskiest step was her decision not to close German borders ican power has held the peace that was a condition for German to over 1m asylum­seekers and other migrants in 2015­16. Even this trading success. Transatlantic spats over nugatory German de­ was an improvised response to an unexpected crisis. Tellingly, fence spending have had few serious consequences. this short­term fi x entrenched long­term diffi culties: it opened Yet a strong economy and Germany’s heft in Europe have con­ the door to the far­right Alternative for Germany (afd) and, by tox­ cealed a darker side at home: a swelling low­wage sector, growing ifying the migration debate, made it harder to liberalise skilled­la­ income inequality, ragged housing markets and persistent child bour laws. Five years on, a bitterly divided eu is still unable to re­ poverty. A misjudged energy policy has given Germans the highest form its asylum rules, leaving it exposed to another crisis. electricity bills in the eu. A strict approach to the public fi nances, expressed since 2009 by a defi cit­limiting debt brake in the consti­ Fear of the unknown tution, has created vast fi scal surpluses even as public infrastruc­ There is a palpable nervousness about Mrs Merkel’s imminent de­ ture decays. Covid­19 has revealed other weaknesses in the public parture. This is the country’s fi rst post­war poll in which the sit­ sector, especially its slow digitalisation. There are reasons to fear ting chancellor is not seeking re­election. The campaign has been that the next decade could expose deeper failings. volatile, with the lead bouncing between the Greens, the cdu and For if Mrs Merkel was a steady hand its Christian Social Union (csu) Bavarian ally, and the spd. A frag­ during crises, she has been less successful mented vote looks likely to make a two­party coalition impossible in setting a longer­term course. Astonish­ for the fi rst time since the founding of the republic. Rarely has the Rarely has the ingly, it is hard to fi nd a single far­reaching identity of the next chancellor and the make­up of any coalition identity of the reform passed by any of the four govern­ been so uncertain. That may mean long post­election negotia­ ments that she has led. This brings to mind next chancellor tions and an ideologically incoherent government that fi nds it a second German term that ought to preoc­ and the make-up hard to get anything done. cupy the next government: ZukunftsfähigThe rest of the eu is even more apprehensive. Mrs Merkel has of any coalition keit, or the ability to face the future. For shaped its response to crises, from euro­zone bail­outs through been so uncertain many, it is something they sorely miss in Russia’s invasion of Ukraine to Brexit. Germany sits at the cont­ the country that Mrs Merkel will bequeath.

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The Economist September 25th 2021

Weaknesses in the German model are starting to show. Depen­ dence on trade means vulnerabilities to deglobalisation. Growing tensions between America and China leave Mrs Merkel’s engage­ ment­fi rst policy increasingly threadbare. The mighty car indus­ try is highly exposed to technological disruption. Germany’s skills shortage will worsen as a demographic crunch looms in the mid­2020s. New climate targets will require deep­rooted changes to industry, buildings and the power industry. Perhaps most wor­ rying, the political class seems to have learned from Mrs Merkel that it is better not to scare voters with too much talk of trans­ formation, leaving only a limited mandate for change.

Germany is a strong, rich, democratic country that should have a bright future. This special report will act as a stress­test, prod­ ding its industrial, bureaucratic, demographic and security poli­ cies at their most vulnerable points to assess where change is most urgently needed. It begins with a look at the country’s peren­ nially low public investment. n

Public investment

An infrastructure hole Infrastructure suff ers from the dearth of public investment

“W

e’re working at the limit,” says Apostolos Tsalastras, treasurer of Oberhausen, a town in the Ruhr valley. Like many places in this region, Oberhausen sits on a vast debt pile, mostly accrued when the mines closed and the steel jobs went.

Unemployment stands at 10.6%, almost twice the national rate.

Last year Olaf Scholz, the spd fi nance minister (and its chancellor­ candidate), sought to relieve municipalities like Oberhausen of their old liabilities, but was thwarted by his cdu coalition partner.

“It’s time for a fresh start,” pleads Mr Tsalastras. His town is locked in a vicious circle of declining investment, slumping tax revenue and a shrinking population.

A federal bail­out meant most municipalities avoided disaster last year. But by 2023 many will face a fi scal crunch, says Jens Sü­ dekum, economics professor at the University of Düsseldorf. The commercial taxes that are their main independent source of in­ come are volatile, and covid­19 creates new demands. National laws limit their ability to cut current spending, one of Mr Tsalas­ tras’s bugbears. That puts capital investment in the fi ring line.

The country’s 11,000­odd municipalities are responsible for a big chunk of public investment. The kfw, a state­backed develop­ ment bank, puts the municipal­investment backlog at €149bn ($172bn), a number that has risen even as tax revenues pour in.

School buildings account for nearly a third of the shortfall; roads just under a quarter. Endlessly delayed mega­projects like Ber­ lin’s airport may have made the country a laughing stock, but it is rusting bridges, shaky phone signals and decrepit school toilets that are the staple of daily conversation.

Ask anyone in local government what the problem is, and the answer is always people. A report by the Friedrich Ebert Founda­ tion, which is linked to the spd, fi nds a huge decrease in munici­ pal staff over 30 years. Immigration has helped, but a quarter of posts remain unfi lled, says Henrik Scheller, one of the authors.

Planning and engineering are especially aff ected, and local gov­ ernments struggle to compete with private fi rms. Two­thirds of municipalities expect it to get even harder to fi nd town planners.

Surveys fi nd construction companies working at capacity. With

5

such supply constraints, spending more without proper planning merely risks stoking infl ation.

Bureaucracy and nimbyism play a role. Companies struggle with a patchwork of planning and building rules. Opponents delay public­infrastructure projects with endless litigation. The num­ ber of projects blocked by citizens’ initiatives has doubled since 2000. This is problematic for roads, railways and bridges. But it is a “real hurdle” to climate transformation, says Mr Scheller. The re­ cently revised climate law mandates a reduction in carbon emis­ sions of 65% from 1990 levels by 2030, and their net elimination 15 years later. The share of renewables in electricity production must also reach 65%. And overall demand for electricity for batteries to power electric cars, for heat pumps in buildings, and for “green” hydrogen to help decarbonise industry may rise by a quarter.

Agora Energiewende, a think­tank, estimates that Germany will have to install an extra 5gw of onshore wind power every year until 2030, and 7gw a year after that. In 2020 it managed just 1.4gw. A visit to Schleswig­Holstein shows how hard it will be. As far back as the early1990s, wind power in this northern state began to revitalise what had been some of the poorest communities in western Germany. Today turbines dot the landscape. Schleswig­ Holstein has 8.5gw of installed wind­power capacity, and produc­ es 160% of the electricity it consumes from renewables. It can ex­ port the excess via new power lines, including to Scandinavia.

In December the state government published new rules for wind­farm construction, after a fi ve­year moratorium imposed amid growing local tensions. The new rules set aside 2% of land for wind energy, but this may not be enough to meet wind­power targets. Add long waiting times for permits and other restrictions and these targets seem unattainable, says Marcus Hrach of the Kiel branch of Germany’s Wind Energy Association. Industry insiders despair at all the hoops they must jump through. “Few people here oppose wind power, but those who do have loud voices,” says An­ ton Rahlf, a frustrated wind­farm owner on Fehmarn, an island in Schleswig­Holstein.

Other states are even more restrictive. Rules to protect endan­ gered species vary from state to state. A few years ago litigation, regulation and complex tendering slowed the construction of wind farms to a crawl, although 2021 has off ered fl ickering hints at a revival. The mismatch between the federal government’s ambi­ tions and the reality of local regulation, says Mr Hrach, will make it impossible for Germany to reach its commitments under the Paris climate agreement.

Another diffi culty, says Alexander Reitzenstein from Das Pro­ gressive Zentrum think­tank, is constructing the power lines needed to transport electricity from the windy north to southern

Not enough Germany, public investment, % of GDP Gross fixed capital formation plus transfers to public companies 6 5 4 Municipalities

3

States

2 1

Federal government 0 1991

95

Source: Destatis

2000

05

10

15

20

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Special report Germany

A troubled road lies ahead The all-powerful automotive sector faces a challenging future

S

aarland is no stranger to transition, jokes Thorben Albrecht, policy director for the ig Metall trade union. The second­small­ est of the 16 states, for a century Saarland bounced back and forth between Germany and France, establishing itself inside the feder­ al republic only in 1957. Coal deposits and steel made it rich, but al­ so left it exposed to job losses when globalisation came knocking in the 1970s. A booming car­parts industry provided a cushion, but Saarland now faces a third shift, as industrial transformation and climate policy come after its two big sources of jobs: cars and what remains of steel.

The government wants 14m electric vehicles (evs) on German roads by 2030, up from 1m today. But the slow death of the internal combustion engine undercuts the business model of gearbox, cooling­system or fuel­injection pump makers—suppliers that dot Saarland and other states. Almost 20,000 people work in Saar­ land’s car industry, mostly in small and medium­sized fi rms. The state has neither a large company headquarters nor a big city with a thriving service sector. “A huge reduction in car­sector jobs will mean social problems of a very large order,” says Hans­Christian Herrmann, who charted previous waves of deindustrialisation as the chief archivist in Saarbrücken, the state capital. An ig Metall survey found that 42% of German car workers fear for their future.

Workers at steel plants, which account for around 6% of Ger­ man carbon emissions, are as worried. “You can see my grey

DENMARK 2.9 33.4

North Sea

0.7 46.4

S

AND

Westphalia

RhinelandLUX. Palatinate

F RAN CE

100 km

6.3 44.7

Frankfurt

Saarbrücken

Saarland

8.0 37.0

3.7 Berlin 42.2 2.2 28.7

SaxonyAnhalt

R M A N Y Hesse

4.1 34.6

BELGIUM

1.6

Dortmund

Cologne

1.0 34.2

Lower Saxony

17.9 North Rhine38.9

G E

tic Se a

Fehmarn

63.8 Hamburg

Cloppenburg

Oberhausen Duisburg Düsseldorf

Kiel

Bal

Schleswig28.6 Holstein Rostock MecklenburgWest Pomerania 1.9

Bremen

ERL

Austerity excesses Since 2013 the annual public­investment budget has risen from around €93bn to €137bn. This, argues Jens Weidmann, head of the Bundesbank, suggests the debt brake is “a bit of a straw man”. Bet­ ter to tackle bureaucracy, capacity constraints and municipalities’ volatile revenues by changing the federal structure. But Sebastian Dullien at the imk, a union­linked research group in Düsseldorf, counters that a guaranteed, long­term income stream of just the sort the debt brake inhibits might give municipal authorities, con­ struction fi rms and engineers the planning certainty they need to reduce bottlenecks and increase staff .

Last year the government invoked an escape clause in the debt brake to fi nance corporate­support, furlough and other schemes during the pandemic, running up a defi cit worth 4.2% of gdp. It will be bigger this year. The cdu/csu wants to reimpose the debt brake once circumstances allow, probably in 2023. So does Mr Scholz, who presents himself as a safe pair of hands (plenty in his spd would like a more expansive approach). The most interesting proposals come from the Greens, who want to add a “golden rule” allowing a debt­funded ten­year €500bn investment programme, focused on climate and digital infrastructure.

Yet the two­thirds parliamentary majority needed to change the constitution is a formidable hurdle. A more likely prospect is the establishment of public­investment companies, essentially off ­budget special­purpose vehicles (spvs), devoted to capital spending on, say, broadband provision in schools or upgrading railways. spvs are legally complicated and democratically iff y, frets Mr Südekum. They would incur borrowing costs at a time when investors actually pay to lend to the federal government. But by not adding to the public­debt stock they off er a way of getting round the debt brake. The cdu/csu chancellor­candidate, Armin Laschet, has fl irted with what he calls Deutschlandfonds.

More radical ideas are afoot, notably a proposal by Dezernat Zu­ kunft, a think­tank led by Philippa Sigl­Glöckner, a former fi ­ nance­ministry offi cial who calls spvs “a declaration of defeat to silly fi scal rules”. Dezernat Zukunft wants to shift the fi scal debate away from arbitrary debt limits towards the goal of full employ­ ment. Low headline unemployment, the group notes, masks low labour­force participation rates among women and part­time workers seeking more hours.

Although the debt brake limits defi cits to 0.35% of gdp, the cal­ culations rely on a complex estimate of “potential” output. In the short run, Dezernat Zukunft reckons tweaks that require legal but not constitutional tampering could allow more defi cit spending worth €50bn­60bn a year. In the long run Ms Sigl­Glöckner hopes to see off the debt brake for good. That such ideas now get a serious hearing suggests the fi scal debate has at last begun to shift. n

The car industry

TH

industrial states like Baden­Württemberg and Bavaria. Local com­ munities can be given a fi nancial stake in wind farms, but that is harder to do for power lines simply transporting electricity. And under Germany’s federal system, states cannot be bossed around by the government in Berlin. “Lots of politicians who agree on cli­ mate in Berlin act diff erently when a line comes to their local com­ munity,” says Tim Meyerjürgens, chief operating offi cer of Ten­ neT, an electricity­transmission operator, adding that the “salami­ tactics” of regular legislative changes harm trust.

There is a near­consensus that the next government must do more to satisfy vast public­investment needs. The debate is over how. For some, tackling the country’s austerity bias is a priority.

The debt brake now in the constitution limits opportunities for defi cit spending. Critics of German tightfi stedness are legion. The European Central Bank has long urged countries with “fi scal space” to exploit it. But all such suggestions have tended to run in­ to an austere wall of fi scal orthodoxy.

The Economist September 25th 2021

NE

6

Jena

2.1 Thuringia 29.0

Former boundary between East and West Germany

Bavaria Stuttgart BadenWürttemberg 11.1 45.1

SWITZERLAND

13.1 46.4

Munich

POLAND

Brandenburg

2.5 29.2

Leipzig

Hoyerswerda Saxony Dresden 4.1 31.0

CZECH REPUBLIC

Motor-industry workers* 2019, as % of all workers 0-0.9 2.0-2.9

1.0-1.9 3.0+

0.0 Population, 2021, m 0.0 GDP per person 2020, €’000

AUSTRIA

*VW only, 2018 for Lower Saxony Sources: National statistics; Wirtschafts Woche

012

The Economist September 25th 2021

hairs”, chuckles Stephan Ahr, who chairs the works council at Saarstahl, a steelmaker in Völklingen. The plant has already lost tens of thousands of jobs. The main decarbonisation plan, in which polluting coke is ditched in favour of hydrogen obtained from renewables, will require far fewer workers. Other develop­ ments, including uncertainty over the carbon price and eu policy on steel imports, add to Mr Ahr’s worries. “Everything aff ects us without us having any infl uence,” he says. “It’s take it or die.”

Germany’s industrial model rests on the full employment that buys consensus between fi rms, workers and government. Labour relations are harmonious. But the impulses to create what unions call a “just” transition can lead to ruinously expensive deals like the “coal exit” agreed in 2019: a €40bn programme to manage the slow elimination by 2038 of the fi nal coal mines, which employ 20,000 people, slightly fewer than the country’s yoga teachers.

The transition is also a challenge to big companies. If carmak­ ers were late to the electric game, Volkswagen, which has almost 300,000 employees in Germany, is scrambling to make up for lost time (and perhaps to repair the damage to its reputation from the diesel­emissions scandal in 2015). Under its charismatic boss, Herbert Diess, and with an eye on Tesla, soon to open a battery gigafactory outside Berlin, vw has gone all­in on electric. It says evs will account for half its vehicle sales by 2030. By 2035 vw, which reckons to account for 2% of global carbon emissions, will cease selling petrol­powered cars in Europe. eu rules and climate targets are forcing tough decisions. But talk to vw insiders and you see how deep the shift has gone. To power the next generation of cars, vw plans by 2030 to build six lithium­ion battery plants in Europe. Entire plants are given over to ev production. The “meb” chassis (or platform) will be spread across models, ensuring cars are built around batteries rather than vice versa, and may be licensed to other manufacturers.

“Think of this as a system, with suppliers, batteries, services and infrastructure,” says Andreas Walingen, vw’s chief strategy offi cer.

“Only then will customers go electric”. Mr Diess has also linked ex­ ecutives’ bonus payments to vw’s share price, a decision one em­ ployee says “changed the dna of the governance.” vw’s profi ts surged in the fi rst quarter of 2021, and investors seem satisfi ed.

The car industry faces the biggest disruption in its history, says Ferdinand Dudenhöff er, head of the Centre Automotive Research in Duisburg. Electrifi cation is just a start. Audi, a vw brand, is try­

Special report Germany

ing a car­subscription model aimed at younger drivers, a growing market that could upend revenue models. Software systems re­ quire digital skills and fresh ways of working. “We are strong on the hardware side of cars, not so good on data and ai,” says Danyal Bayaz, the Green fi nance minister of Baden­Württemberg, another big car state. Some fear vw will never catch up with Tesla—or the Chinese fi rms muscling in. Fully autonomous vehicles, should they arrive, may bring the biggest change yet.

As for the jobs, the scares are overblown, insists Mr Diess (who faces powerful unions and workers’ councils). “Seats remain seats, steel remains steel, wheels remain wheels, brakes remain brakes,” he recently told the German Press Agency. A study by the Boston Consulting Group and the German think­tank Agora Ver­ kehrswende projects no net loss of jobs by 2030, although other surveys are less sanguine. But the headline fi gure conceals mas­ sive churn, as component making gives way to battery production and coding. Almost half the country’s 1.7m car workers will need reskilling, especially the sme suppliers. This, warns the study, will mean “considerable expense” for fi rms and workers.

And for the state, too. Carmakers rely on the government to set carbon targets, roll out ev charging infrastructure and tweak regu­ lations to make it easier to harmonise refuelling payment systems across the country. Until 2025 the federal government will subsi­ dise ev buyers to the tune of €6,000 per car. The incentives have lifted the share of evs and hybrids to over a fi fth of all new sales, but they are regressive and expensive. Deutsche Bank calculates that each ev could over its lifespan cost the state €20,000 in sub­ sidies and taxes forgone.

Beyond the jobs churn, Saarland looks hopefully to new indus­ tries spawned by industrial transformation, rather as cars provid­ ed a safety net during the previous wave of deindustrialisation. svolt, a Chinese battery maker, plans two plants in the state which it says could create 2,000 jobs, although locals are sceptical. Hy­ drogen, an untested fuel central to the government’s climate plans, is another hope. One thing everyone agrees on is that the transition needs to be oiled with public money. The industry reck­ ons some €30bn will be required to make the full transition to de­ carbonisation. Some politicians pledge that climate protection will be the next engine of prosperity. At least in Saarland, many are unconvinced. “We have just eight years to change a region,” says Ralf Reinsteadtler at ig Metall. “That’s tomorrow.” n

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Special report Germany

The Economist September 25th 2021

The demographic challenge

Desperately seeking people The task of coping with ageing and shrinking populations is hardest in the east

O

n the face of it there is little to separate the two towns. Clop­ penburg, near the Dutch border, and Hoyerswerda, 40km from Poland, each has a population of 30,000­40,000. Both, say local offi cials, off er respite from the strains of urban life: cheap housing and plenty of kindergarten places, the shortage of which is a huge source of stress for metropolitan parents. Neither is near a big city; both off er visitors a friendly, somewhat sedate, face.

But the similarities end there. With one of Germany’s highest birth rates, Cloppenburg is growing at a steady clip, whereas Hoyerswerda has moved in the opposite direction. “This is a fam­ ily­friendly region,” beams Johann Wimberg, Cloppenburg’s dis­ trict administrator. “You can build a home here.” Hoyerswerda, a former coal­mining hub, lost half its population after reunifi ca­ tion in 1990, largely to westward emigration. The district of Clop­ penburg has grown by nearly 50%. Hoyerswerda’s “new” town (built during the communist era) is pockmarked by vacant plots on which gdr housing blocks once stood. Industrial parks on the outskirts of the town are half­empty.

Until a small, covid­induced decline last year, the German pop­ ulation rose steadily over the 2010s, reaching a record 83.2m in 2019. This was the result of high net immigration, running at an annual average of 400,000, mainly from southern and eastern Eu­ rope. Even the birth rate, long one of the lowest in the world, ticked up. But now a crunch looms. The birth rate peaked in 1964, and the baby­boomers are preparing to retire. In 2000 there were 26.5 over­60s for every100 aged between 20 and 65. By 2025 this ra­ tio will have shot up to 41.4. Immigration and labour­force partici­ pation rates aside, the working­age population will shrink by over 4m in the coming decade. Within the oecd club of mostly rich countries, only Italy and Japan have older populations.

Some parts of the country will do worse than others. Germany is no stranger to the town­and­country divide, but in some regions its economic structure mitigates against rural decline. Cloppen­ burg, like many small places, benefi ts from the success of “hidden champions”: the profusion of smes, often based in the middle of nowhere, that keep well­educated locals close to home. These Mit-

Demographic difficulties Old-age dependency ratio Population aged 65 and over per 100 working age* population 2000

2015

Japan

0

2025 forecast 20

40

60

Italy Germany France Netherlands Spain Canada Britain United States Source: OECD

*Aged 20-64

telstand fi rms, which often operate in specifi c niches, are a pecu­ liar feature of the industrial landscape. The area round Cloppen­ burg also off ers less salubrious work in the form of meat­process­ ing plants, which attract transient eastern European workers.

Hoyerswerda has no such luck. This correspondent’s visit co­ incided with one from the Dresden branch of the Helmholtz Cen­ tre, which was considering where in the Lausitz region to locate a new research centre. Torsten Ruban­Zeh, the mayor and irrepress­ ible cheerleader for his city, presented his vision of a vibrant, fu­ ture­minded place ripe with opportunities for medical research and tourism. He noted that Hoyerswerda could not hope to hold on to the 200 or so students who leave its high­end Gymnasium university each year, but needed prospects for the next tie school­leavers, largely in technical work. The experts were convinced; Hoyerswerda dropped out of the reckoning.

Parts of formerly communist East Germany face almost insur­ mountable demographic hurdles. Although people are no longer leaving for the west, so many of them did so after reunifi cation (a net 1.74m by 2006), especially the educated young, that the demo­ graphic damage is now baked in. All fi ve eastern states are older than all 11 western ones. If some “lighthouse” cities like Leipzig or Jena, on which state governments have showered attention, are muddling through, or better, it is a bleaker picture for smaller towns and the countryside.

Yet few regions are immune. By 2035 only 31 of Germany’s 401 Kreise (districts) will have a working­age population comparable to today’s, according to projections from the Berlin Institute for Population and Development. (The east will suff er disproportion­ ately: 23 of its regions will lose one­fi fth of their people.) The pub­ lic sector is highly vulnerable: almost a third of government em­ ployees are due to retire in the next decade, according to Gerhard Hammerschmid at the Hertie School in Berlin.

Help from abroad Immigration can help only so much. It has already slowed inside the eu, as eastern countries have their own demographic woes. In 2020 Germany modestly relaxed entry requirements for skilled workers from outside the eu. But as Johannes Vogel, a Free Demo­ cratic Party (fdp) mp, notes: “Every expert knows it won’t be

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The Economist September 25th 2021

enough.” The Federal Employment Agency reckons the country needs 400,000 immigrants a year to plug its skilled­labour gap.

The public­pension scheme is also threatened. Since 2007 the number of recipients has risen by more than 1m to above 21m, over a quarter of the population. The system sucks around €100bn a year from the federal budget, over 30% of total spending. A strong labour market and earlier incremental reforms, including a slow rise in the retirement age to 67 by 2031, have somewhat eased the situation. Uncertainty over growth and immigration make long­ term predictions hazy. But the coming crunch is as clear as day.

What to do? The imf calls for indexing the retirement age to life expectancy, as Denmark does. More likely are smaller tweaks, in­ cluding increases in the contribution rate from today’s 18.6% of gross wages. Payments may have to fall, too: last year a pension committee suggested the ratio of average pensions to income would probably have to drop from 48% to 44% after 2025. Jens Weidmann, head of the Bundesbank, adds: “It doesn’t seem very convincing to rule out changes to the retirement age while life ex­ pectancy continues to increase.” Failure to reform will only in­ crease the burden on the federal budget, exposing the system to recessionary risks, notes Christian Dudel at the Max Planck Insti­ tute for Demographic Research in Rostock.

Yet change will not be simple. Pension reforms do not, as a rule, inspire France­style mass protests. But an ageing electorate will not roll over easily, and in consensus­oriented Germany the gov­ ernment will need to prepare the ground carefully. In June politi­ cians howled when advisers to the economy ministry warned that the state pension system could face serious fi nancing problems as early as 2025. “My hope is that we start reform before it becomes a political battle in which many participants will be wounded,” says Steff en Kampeter, general manager of the bda employers’ associa­ tion. Four in fi ve Germans think their state pensions will not be enough to live on in old age. It will fall to the next government to ease their fears. n

The European Union

Missing Angela already There is no obvious replacement for the chancellor in Europe

A

ngela merkel’s fi rst eu summit, in December 2005, was a sign of things to come. Tony Blair and Jacques Chirac were locked in combat over the seven­year budget. The chancellor, in offi ce for three weeks, took stock of others’ red lines, schooled Mr Blair and Mr Chirac in the fi ner details and, after negotiating for hours (and oiling the wheels with German money), brokered a compromise. If the rest of Europe is nervous over Mrs Merkel’s de­ parture, it is because she has made herself the indispensable Euro­ pean: brilliantly briefed, invested in personal relationships, and possessing almost superhuman negotiating stamina.

Mrs Merkel has held Europe together when it counts: leading the charge against Russia after its attack on Ukraine, holding the line on Brexit and now assenting to joint eu borrowing for its post­ pandemic recovery fund. But a fair accounting would also fi nd much to criticise. In the euro­zone crisis she forced countries like Greece into punishing austerity and entrenched a narrative of fi s­ cal indiscipline that deepened and lengthened Europe’s recession.

In 2015­16 her unilateralism on border policy and negotiations with Turkey infuriated her partners, deepening an east­west split.

Many also believe she could have done more to resist the authori­ tarian drift in Poland and Hungary.

Mrs Merkel is no starry­eyed European. Campaigning in 2005, she said the eu ought to think about returning some powers to governments. Five years later, in a speech to the College of Europe

The young’s attitudes New German voters have no memory of life before Mrs Merkel

T

he litany of foreign leaders Angela Merkel has outlasted is impressive.

Since she took offi ce in 2005, America and France have been through four pres­ idents each, Britain has seen fi ve prime ministers and Italy no fewer than eight.

But at home an entire generation has grown up with no memory of another leader. In September 2.8m of these Merkelkinder, making up nearly 5% of the electorate, will be eligible to vote for the fi rst time in a federal election. The Economist met a few at the Sophienschule, a Gymnasium (grammar school) in Hano­ ver. All are near or have just fi nished their fi nal year of schooling.

For some, the experience of covid­19 was a harsh reminder of political reality in a country where the over­60s make up well over a third of eligible voters. “The pandemic showed how unimportant younger voters really are,” says Marie

Sophie Scholz. “Apart from our teachers, no one cared.” All the students have har­ rowing accounts of failed technology, disrupted home lives, lost motivation and loneliness. Some say their pandemic experiences will infl uence their vote.

Climate concern looms large. Many students have participated in Fridays for Future climate marches. “The average voter is in their 50s, so for us it’s not enough to vote,” says Julian Köppen. “But we can demonstrate.” Marie is infuriated by condescending politicians who dismiss such actions as excuses for truancy: “If they don’t act now, politics will become a very dark place.” Hannah Sprengel grum­ bles: “They see what we do, but don’t act.”

Julian is excited by a court ruling that partly struck down the climate law for not taking suffi ciently into account the rights of future generations. This approach to sustainability, he reckons, must extend

beyond climate to areas like the digital­ isation of schools. Max Brinkmann wants more focus on inequality and pensions— and thinks change comes from collective movements (he has joined the spd). For Julian, a big issue is “security”, by which he means “avoiding international con­ fl icts and not provoking other leaders.”

Mrs Merkel was good at that, he reck­ ons. All students appreciate the chancel­ lor’s calm, rational approach to politics, in contrast to what Max fears has become an “emotional and populist” campaign. “We will miss her,” he says, while conceding that the chancellor “pushed away prob­ lems” that seemed too hard to solve. There is some scepticism about assuming Mrs Merkel’s departure will mean rupture. “We don’t have to be nervous,” says Hannah.

“No one person will make or break a sys­ tem.” Still, adds Marie, life after Merkel is “looking into the unknown”.

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Special report Germany

in Bruges, the chancellor expressed scepticism about the “com­ munity method”, in which eu institutions like the European Com­ mission and European Parliament (which she is said to dislike) drove integration. As the eu bounced from crisis to crisis, she backed the alternative “union method”, with power shifting back to national governments—none more important than her own.

The European Council, where leaders thrash out deals often shaped by domestic political currents, has become the eu’s central decision­making institution. Presidents of the commission, like José Manuel Barroso and Jean­Claude Juncker, have often had to take a back seat (although the current one, Ursula von der Leyen, a former German defence minister, has quietly strengthened her in­ stitution). Mrs Merkel’s approach has not been to everyone’s taste.

“She hasn’t been a neutral crisis manager; she’s actively worked against Europe,” complains Alexander Graf Lambsdorff , an fdp mp and former mep.

Yet the eu and the euro have worked for Germany—so well that it is not obvious why any chancellor should push for radical change. If joining the European project was the condition for re­ admission to the club of civilised nations after the war, more re­ cently it has been the engine for German prosperity. The trading freedoms of the single market; skilled migrants from, and low­ wage labour in, central Europe; and the cheap euro have all been a boon. eu countries account for over half of German exports, even after Brexit. And its economic strength has made the country the most important partner for almost all other eu members.

The next chancellor will face a big test when the commission reviews the eu’s Stability and Growth Pact, which limits fi scal def­ icits and public­debt stocks. Demand for change will meet fi erce resistance from German conservatives. (The subject is suffi ciently touchy that offi cials in Brussels are under instruction to keep their thoughts to themselves until after the German election.) But many governments, including France’s, believe the old rules are ill­suit­ ed to an era of low long­term interest rates and pressing invest­ ment demands. Some foresee a grand bargain, in which Germany accepts longer­term joint borrowing for the eu in exchange for a return to something closer to the pact’s existing rules.

A bigger question is whether the next government will sign up to ideas associated with Emmanuel Macron’s “strategic autono­ my” agenda. In a recent paper Jana Puglierin and Mark Leonard of the European Council on Foreign Relations draw on opinion poll­ ing to conclude that Germany “may be on the cusp of a nationalist turn”. The remedy, they argue, is for the next government to make a patriotic case for investment in European sovereignty on mat­ ters like screening foreign investments, the international role of the euro and competition policy. Boosting European resilience as a hedge against American unpredictability and Chinese aggres­ sion, they argue, may become a condition for ensuring voters’ continuing support for the eu.

Many will take some persuading. And yet as it becomes clearer that the global circumstances that allowed Germany to thrive are disappearing, parts of the establishment are embracing European ideas that would not previously have earned a hearing. Take in­ dustrial policy. In 2019 Germany joined France in seeking unsuc­ cessfully to persuade Margrethe Vestager, the eu’s competition su­ premo, to allow a merger of Alstom and Siemens, two industrial giants, so that it could compete against the Chinese.

Germany has also backed the eu’s “important projects of com­ mon European interest”, subsidies for “strategic” investments in hydrogen projects, battery production and the like. It is inching slowly towards translating abstract support for common Euro­ pean defence into reality via joint weapons projects. These devel­ opments and others hint at a dawning awareness that economic policy has a geopolitical dimension. And that may suggest the country’s foreign and security policy needs a complete reboot. n

The Economist September 25th 2021

Foreign and security policy

More assertiveness wanted A passive (and pacifist) country considers a more active role

O

n august 2nd the Bayern, a Brandenburg­class frigate, set sail from the North Sea coast with over 200 troops aboard and a novel mission. Over seven months the warship would traverse the Suez canal and Red Sea, dropping anchor in places like Mumbai before reaching the South China Sea, where an assertive China is intimidating neighbours with unfounded territorial claims.

“Germany has a strong interest in stability, security, and rules­ based politics in the region,” says Annegret Kramp­Karrenbauer, the defence minister. “We are not a regional power, but we support our partners.” This is unusual talk from a German politician. The frigate’s dispatch was a signal of intent to China and reassurance to allies. It also tells a story of a political class struggling to make sense of Germany’s role in a changing world.

Ms Kramp­Karrenbauer, once considered a successor to Mrs Merkel, suggested sending a frigate in 2019. But peacenik spd mps objected. Wary of upsetting her grand coalition’s balance and ill­ disposed to provocations, Mrs Merkel leaned on her former proté­ gée to compromise. True to form, the internal problem was exter­ nalised: the Bayern would steer clear of disputed territories in the South China Sea and seek permission to dock in Shanghai. The de­ cision confused Germany’s allies, including America. What exact­ ly was Germany trying to achieve?

The next government will face serious foreign­policy challenges. Some are famil­ iar: a Russian menace, an underfunded The biggest Bundeswehr, cyber threats, the risk of a strategic fresh migrant crisis, perhaps from Afghan challenge will refugees. The fi rst test for the next chancel­ be the recalibralor, speculates one offi cial, may come from a French request to shore up Germany’s tion of relations presence in Mali, already its largest over­ with China seas military deployment.

The biggest strategic issue will be the recalibration of relations with China. Over the years Mrs Merkel fostered an agreeable cou­ pling between the growing Chinese market and German export­ ers. China has been the country’s biggest trading partner since 2016. But this was not glorifi ed mercantilism. Spotting China’s po­ tential earlier than most, and fearing European decline, Mrs Mer­ kel has sought to manage China’s rise, not contain it.

But the relationship has started to sour. The trophy of Mrs Mer­ kel’s engagement, an eu­China investment treaty she pushed last year, is in the deep freeze because the European Parliament will not ratify it. The Greens, likely to join the next government, are human­rights hawks on China. Even the cdu manifesto is tougher than previous iterations. There is a sense that, as Mikko Huotari, head of the merics think­tank, puts it, “Germany’s China policy will have to be recalibrated on most fronts.”

Big industries like cars and chemicals have not withdrawn their long­term bets on Chinese growth. But other sectors have grown tired of the costs of doing business with China. In 2019 the Federation of German Industries (bdi) issued a paper calling Chi­ na a “systemic competitor” and urging policy changes. Such devel­ opments have inspired German support for a bolder eu industrial policy. “We see China as a partner, a rival and a competitor,” says Jens Spahn, the cdu health minister, describing the eu’s taxon­

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The Economist September 25th 2021

omy of relations. “None of this includes dependence—and this worries me.”

Mrs Merkel’s attempts to bring China into the multilateral fold were grounded in a conviction that globalisation could work only if the biggest economies signed up to its rules. But the emerging competition between America and China, which extends far be­ yond the military sphere, makes this harder. Some fi rms have started to hedge. Carmakers are ramping up battery production in Europe. Companies will have to think how to navigate patchwork rules, where to locate r&d centres and how much distance to keep between head offi ce and Chinese subsidiaries. Even the semicon­ ductor shortage—a product not of trade wars but of supply­chain hiccups—is a reminder of latent vulnerabilities. All this, says Mr Huotari, shows that “China is no longer an all­in bet”. And some offi cials fret about Chinese economic and diplomatic pressure.

Belts and roads Take Duisburg, a debt­ridden former industrial hub fallen on hard times. Home to Europe’s largest inland port and part of one of its most densely populated states, Duisburg is seeking redemption through China’s Belt and Road Initiative, an infrastructure­and­ infl uence programme for which it is the European terminus. Some 70 trains make the 17­ to 22­day journey between China and Duis­ burg every week, bearing electronics, vehicles and other goods for European consumers (and returning with machine tools, car parts and food). “Duisburg has become very famous in China,” says Jin­ heng Feng, who gave up an academic job in 2017 to set up a consul­ tancy for Chinese fi rms interested in doing business in the city.

“The New Silk Road is a big chance for Duisburg to build a new economy,” says Rasmus Beck of the city’s economic­development agency. If the results beyond container trade have been limited, offi cials speak brightly of building “bridges of knowledge”, with China off ering tech expertise while learning from Duisburg’s ex­

Special report Germany

perience of post­industrial transformation.

Having found a model that holds promise for Duisburg’s reinvention, few are inter­ ested in having it tested by shifts in geopol­ itics. They point out that, unlike Greece and Italy, Duisburg has been careful to avoid selling big stakes in infrastructure to Chi­ nese investors.

A forthcoming paper by Roderick Kef­ ferpütz, also at merics, says China has be­ come adept at leaning on offi cials in decen­ tralised Germany. In North Rhine­Westpha­ lia, home to Duisburg, America and Britain have given quiet warnings of Chinese eco­ nomic infl uence. In 2018 critics howled when the city signed a deal with Huawei—a now­ailing Chinese tech giant with its European headquarters in nearby Düssel­ dorf. Elsewhere, cities that fl y Tibetan fl ags or allow Falun Gong protests have been criticised by the Chinese embassy. Andree Haack, head of Duisburg’s economic de­ partment, sums up China’s insertion into multiple dimensions of governance. “You can see big politics is coming to the local level. But we have been given no European answer to the digital transformation.”

Germany has grown rich on the back of a benign global order it did little to support.

If challenged, it could sprinkle on its trade policy a dash of Wandel durch Handel (“change through trade”, the notion that growth will liberalise autocratic states), a hypocritical idea it suit­ ed everyone to pretend to believe. Leaders agonised endlessly over foreign deployments or giving the Bundeswehr armed drones. An idealistic worldview “prevented them from acknowledging that some powerful players do act in amoral, cynical and militaristic ways,” argues Maximilian Terhalle at King’s College London.

Under pressure from allies, this picture has slowly changed.

The defence budget, though short of the nato target of 2% of gdp, has risen since 2015. Germany spearheaded the eu’s diplomatic re­ sponse to Russia’s attack on Ukraine, and its troops head a nato “tripwire” force in Lithuania. Some 2,500 soldiers contribute to 11 multilateral missions abroad, and Germany is a partner in joint European defence ventures like the Future Combat Air System.

Yet this hardly adds up to a strategic outlook grounded in a sense of the national interest. It is not hard to conjure scenarios that would send offi cials into a tailspin, says Claudia Major, who works at the German Institute for International and Security Af­ fairs. What if America withdraws its nuclear weapons? What if dithering over arms­export rules or new technologies hinders the development of European defence schemes? What if tensions over Taiwan threaten global free trade? The recent Afghanistan debacle, fears Ms Major, may make the country even more inward­looking by strengthening those who argue that interventions never work.

After the Bayern’s departure, the Chinese government issued a hostile statement asking Germany to clarify its intentions before it extended an invitation to Shanghai. Offi cials in Berlin who had struggled to resolve the ambiguity of the mission were relieved: Beijing had, in a sense, done the job for them. But the country can­ not rely on others to fi x its problems for ever. “More and more Ger­ mans realise that their prosperity, freedom and security require more strategic thinking and acting,” says Ms Kramp­Karrenbauer.

“Most important, they realise that doing nothing and being the good guy are not always the same thing.” n

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The future

Reforms, reforms Unfortunately, politics may not allow them

A

ngela merkel has steered Germany and Europe through dif­ fi cult years. Although it may come as news to some, she will leave a country more at ease with itself than at any time since the republic was set up in 1949. Germany rests on solid foundations, from its universities and basic research, to its world­beating Mittelstand and undisputed engineering prowess. Its researchers in­ vented the fi rst diagnostic test for covid­19 and the fi rst vaccine to use the messenger­rna technology. Its democracy is robust, it sits at the hub of a strong network of alliances, and its European and global brands are stronger than ever. Few of the defi ciencies this special report has sought to highlight seem irremediable.

For all that, suggests Thorsten Benner of Berlin’s Global Public Policy Institute, “We may see the Merkel years as the last hurrah of the German model.” If its foundations are strong, parts of the inte­ rior have started to show their age. For many voters, the old veri­ ties on debt, industry and Germany’s place in the world retain a vintage charm. But they are increasingly out of step with a de­ cidedly contemporary set of challenges.

Serious reform of Take covid­19. Although Germany suf­ the public adminfered a lower death rate and a gentler eco­ nomic blow from the pandemic than many istration often other countries, the experience also ex­ falls prey to more posed Germans to failings in the operation pressing matters of their state. Many were shocked to see how schools failed to get to grips with online learning, or the end­ less bickering between federal and state politicians. The fax ma­ chines used by health offi ces to communicate test results became emblematic of a primitive public sector. Aggregating timely, con­ sistent data proved elusive. Without the ability to impose com­ mon it standards, the federal government was left to watch what Mr Spahn calls “400 digital islands” manage fragmented and in­ compatible systems.

The weaknesses of a tripartite governing system—federal, state and municipal—partly explain such woes. A €3bn fund approved by the federal government to help states observe an online­access law in 2020 took over a year to divide up. By the end of last year less than €500m of the government’s €6.5bn “digital pact for schools” fund, approved in 2019, had been disbursed. Even less had been spent, as understaff ed local governments struggled to understand the rules. One diffi culty is a constitutional bar on the federal gov­ ernment directly funding municipalities in most circumstances.

Workarounds muddy lines of responsibility and accountability.

“Everyone knows that we need a federalism reform, and everyone knows that we won’t get one,” says Steff en Kampeter of the bda.

Another problem is the quality of administration. If all bureau­ cracies battle with complacency and dead wood, Germany’s is worse than most. “All that German offi cials want to do is develop tactics of risk avoidance,” says one consultant, a claim borne out in international comparisons. Recruitment practices are stodgy, strict silos mean functions are duplicated, and lawyers dominate everything. Bureaucratic jobs have mushroomed; the price of un­ happy grand coalitions where places must be found for everyone.

One mid­level offi cial says he marvels at the ability of his col­ leagues to bounce the simplest external request around for days.

The Economist September 25th 2021

The aspirants to replace Mrs Merkel all pledge to make the country more zukunftsfähig, as is customary before all elections.

The climate imperative in particular will force them to think more seriously about such arcane matters as planning procedures and municipal staffi ng. But René Geissler, professor of public admin­ istration at the Technical University of Applied Sciences in Wil­ dau, is sceptical. “We’ve been having the same debates for years,” he says. “I really don’t see change coming.” Once governments are in place, serious reform of the public administration often falls prey to more pressing matters.

Germany’s increasingly fragmented politics will not help. The next government could see growing tensions between the usual emphasis on consensus and the pressing need for action. In the­ ory, once it is in place—which may not be until early 2022—a three­party coalition, an unfamiliar experience at federal level but the likeliest election outcome, could unite the best aspects of each party’s programme: Green zeal on climate and investment; a liber­ al focus on digitalisation, innovation and bureaucracy; and so forth. But at least as likely is internecine bickering and political gridlock, especially in the absence of a chancellor with Mrs Mer­ kel’s clout.

Beyond Berlin Should it turn out that way, Germany will not be the only casualty.

Emmanuel Macron, if he survives his own re­election bid next spring, will at least for a time emerge as the eu’s central fi gure. But as the French president has always recognised, his country is too weak, and in some quarters too mistrusted, to lead Europe alone; it needs a strong German partner committed to domestic reform and a more assertive posture abroad. And as American attention continues its long shift to China and the Pacifi c, the pressure on Germany to play a more active role in the eu’s troubled neighbour­ hood, beyond its (relative) comfort zone of providing deterrence inside Europe, can only increase.

What are the prospects for success? To judge by the election campaign, which has been dominated by trivial scraps, personal peccadillos and arcane discussions about coalition confi gura­ tions, they look slim. Debate on foreign policy has been especially thin; Europe has been almost entirely absent. Renewal in Germa­ ny rarely follows arrow­like from a new government; and even less so from the promises politicians make to an electorate that is hardly enthused by the prospect of disruptive change.

The optimist might claim that the challenges for Germany have become impossible to ignore. Those voices advocating reform, from a more realistic fi scal approach to a grown­up security poli­ cy, have started to earn a hearing inside government; some of them may even join the next one. Yet as Germans prepare for a new chancellor for the fi rst time in 16 years, the danger of the compla­ cency for which Mrs Merkel will surely be remembered has be­ come starkly clear. Overcoming it will be the biggest task for who­ ever takes her place. n

acknowledgments A list of acknowledgments and sources is included in the online version of this special report offer to readers Reprints of this special report are available, with a minimum order of five copies. For academic institutions the minimum order is 50 and for companies 100.

We also offer a customisation service. To order, contact Foster Printing Service: Tel: +1 866 879 9144; email: economist@fosterprinting.com For information on reusing the articles featured in this special report, or for copyright queries, contact The Economist Rights and Syndication Department: Tel: +44 (0)20 7576 8000; email: rights@economist.com more special reports Previous special reports can be found at Economist.com/specialreports

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Germany’s election

The hunt for the Merkel middle BE RLIN, CE LLE, FRANKFURT AND MUNICH

None of the politicians vying to succeed Germany’s outgoing chancellor has her knack for appealing to a centrist electorate

T

he mood among her comrades is “eu­ phoric”, says Sonja Hergarten, a volun­ teer for Germany’s Social Democratic Party (spd) at a campaign stand in Munich’s uni­ versity district. At the last election, in 2017, she had the unenviable task of persuading Germans to vote for Martin Schulz, a little­ known politician who had returned from a career in Brussels to lead the spd’s cam­ paign. This time the candidate is Olaf Scholz, a familiar face to most Germans as the fi nance minister and vice­chancellor, and a much easier sell. As if to prove the point, a grinning passer­by exclaims “Toll, toll, toll!” (“Great, great, great!”).

A few hours later Mr Scholz himself ar­ rives in town. Speaking below the impres­ sive façade of Munich’s neo­Gothic Neues Rathaus (town hall), he presents a list of modest social­democratic priorities, in­ cluding aff ordable housing (an important local issue), pension security and the pres­ ervation of jobs during Germany’s climate transition. Then comes his leitmotif: “re­ spect” for the labour of “the craftsman or the logistics worker”, which implies lifting the minimum hourly wage to €12 ($14), a

signature policy. Mr Scholz hammers the governing Christian Democrats (cdu), the senior partner in the “grand” coalition with his spd, for pushing tax cuts when the state has incurred €400bn in pandemic debt. Afterwards, Mr Scholz receives the adoration of autograph­hunting fans with the reserve customary to his home town of Hamburg. His famous Smurf­like grin turns rictus after the seventh selfi e.

Until this summer the spd had been in the doldrums for years, haemorrhaging members, money and support. If the ex­ traordinary comeback suggested by opin­ ion polls (see chart 1, next page) is con­ fi rmed on September 26th, the victory will belong to Mr Scholz. An experienced politi­ cian who sits on his party’s right, he is by → Also in this section 43 Germany’s pro-business party 44 The rigging of Russia 44 Church elections in Sweden 45 Charlemagne: France’s humiliation

far the most popular of the candidates seeking to replace Angela Merkel as chan­ cellor, and the spd’s campaign has been or­ ganised accordingly. Mr Scholz’s visage dominates the stylish red posters that fes­ toon the Munich stand, along with reas­ suring phrases like “Kompetenz für Deutschland”. They have been a huge hit with voters, says Ms Hergarten, sporting a “#TeamOlaf” face­mask.

Yet the real story of the campaign has been the weakness of Mr Scholz’s rivals, chief among them Armin Laschet, candi­ date for the centre­right cdu and its Bavar­ ian sister, the Christian Social Union (csu).

In April Mr Laschet prevailed over the more popular (and populist) Markus Söder, the csu leader, for the parties’ joint candidacy only because cdu grandees feared yielding to the Bavarians would doom their party for a generation. Mr Laschet’s dire approval ratings have dragged his party down with him. “People dread the idea of seeing him on the evening news for four years,” says Frank Stauss, a campaign strategist. A faint air of the ludicrous has attached to Mr Las­ chet throughout the campaign.

This feeling is not entirely dispelled at a recent campaign stop in a beer garden in Celle, a small town in the northern state of Lower Saxony. The 5’8” bespectacled Mr Laschet, with a slow­moving entourage and security detail, is welcomed onstage to the strains of “Eye of the Tiger”, a macho boxing anthem. A local offi cial introduces him as if he were Rocky Balboa.

Yet Mr Laschet is a strong speechmaker

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once he fi nds his stride. He aims his pitch at Germany’s “normal people,” who rise at seven and drive to work each day; the sorts, in fact, that fi ll the Celle beer garden. Like Mr Scholz, he pledges to combine climate protection and support for industry, while weaving in foreign­policy and security themes that cdu strategists reckon are their comparative advantage over the spd.

Mr Laschet also fi nds time to wage a bit of a culture war against Germany’s hyperactive language police—a jab mostly at the Greens. Several attendees say Mr Laschet’s performance has dispelled their original scepticism. “He’s obviously not a person who opens hearts immediately,” says Sa­ bine Rudnick, a party foot­soldier. But the media exaggerate his foibles, she reckons.

Touching the void In 2001, four years before she took offi ce, Mrs Merkel outlined her electoral strategy to Der Spiegel, a weekly. “Think of the [po­ litical] middle as a point,” she said. “Divide the scale into three sections to the right and left of this point, and we have to get the larger part of the middle third of the vot­ ers.” A majority of German voters indeed place themselves in the centre of the politi­ cal spectrum, and more of them lean left than right. Mrs Merkel, who will leave of­ fi ce after 16 years with approval ratings of over 80%, was able to extend the reach of the cdu/csu to groups like older women and ethnic minorities while defusing con­ fl icts that might rouse opponents (a trick known to electoral strategists as “asym­ metric demobilisation”). Some of her deeds in offi ce, such as keeping Germany’s borders open to over 1m migrants in 2015­ 16, earned her lasting support from Green and other progressive voters.

This is the fi rst time in modern German history that a sitting chancellor has not sought re­election. The void left by Mrs

2

The left leaps back

Germany, “camp” vote shares in federal elections % of eligible voters 100 “Conservative” votes: CDU, CSU, FDP

80 AfD AfD

Others*

60

AfD

40 “Progressive” votes: SPD, Greens, PDS/Left

20 0 1998 02 2005 09

13

17

21†

*Includes non-voters and invalid votes †Pre-election poll, September 21st

Source: Forsa

Merkel’s departure has led to what Kajo Wasserhövel, an spd politician­turned­ consultant, says is the most extraordinary campaign he has witnessed in four de­ cades. Within four months the lead has bounced between the Greens, the cdu/csu and now the spd. Yet voters’ basic prefer­ ences have been broadly stable, says Peter Matuschek at Forsa, a pollster. Instead, the parties—and especially, in what has been a highly personalised campaign, their lead candidates—have stumbled in their bids to appeal to the Merkel Mitte (middle).

As the candidate of Mrs Merkel’s party, Mr Laschet, the premier of North Rhine­ Westphalia, Germany’s largest state, had the easiest task. A centrist who saw off a threat from the cdu’s conservative wing to win the party leadership in January, he had hoped that simply aspiring to the moder­ ate course of Mrs Merkel’s two grand co­ alitions would allow him to coast to victo­ ry. Two­thirds of Germans feel personally well­off ; the party assumed few voters would see much reason for rupture. The cdu/csu manifesto is strikingly thin, even by the standards of a party that has always 1

Not what Merkel wanted Germany Voting intention in federal election, % Olaf Chancellor candidate Annalena Armin Scholz announcements Baerbock Laschet

Withdrawal of troops from Afghanistan completed

“Who would you prefer as chancellor?”, % responding 40

40

Severe flooding affects parts of Germany

95% confidence

30

30

CDU/CSU Scholz

The Greens

20

20 SPD

Baerbock

AfD

10

10 Laschet

FDP

The Left

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

2020 Sources: Wahlrecht.de; Forsa; The Economist

2021

0

0 Mar Apr

May

Jun

2021

Jul

Aug Sep

been more interested in power than ideas.

But voters have long noticed that Mrs Merkel’s party has been struggling to artic­ ulate an identity that will outlast her. Be­ fore covid­19 struck, the cdu/csu had slumped to around 26% nationally and suff ered a string of reverses in state elec­ tions. Yet the incumbency eff ect of the pandemic, which saw the party briefl y soar to 40%, bred complacency. Mr Laschet sometimes acted as if the chancellorship was a bequest from Mrs Merkel rather than an offi ce to be fought for. Playing it safe looked risky even when the Greens, the most radical of the leading parties, were expected to be the progressive challenger.

In July Mr Laschet, touring the fl ood­hit re­ gions of his state, was caught chuckling on fi lm. Many voters saw confi rmation of a fundamental unseriousness.

But when Mr Scholz, who represented a more credible brand of continuity than Mr Laschet, unexpectedly rose from the dead, the cdu/csu was left fl at­footed. Its cam­ paign has fl oundered ever since. The par­ ty’s tone veers from statesmanlike one day to blindly partisan the next, pushing an implausible argument that the impeccably moderate Mr Scholz wants to invite the hard left into coalition. Mr Söder, still smarting from his defeat, sounds more an­ tagonist than ally. The cdu/csu has lost the support of perhaps 7m voters since the start of the year, and fewer than half those who remain prefer Mr Laschet as chancel­ lor. If he had drawn the lesson of compla­ cency from Mrs Merkel’s reign, he forgot about her competence.

The Greens placed a diff erent bet. Ger­ many’s Mitte had shifted, they argued; vot­ ers wanted something more imaginative than the clapped­out grand coalition they had been lumbered with for eight years.

The shift was subtle, but important: the Greens no longer presented themselves as a vanguard but as a vessel for voters’ ambi­ tions. The party’s co­leaders, Annalena Baerbock and Robert Habeck, are found de­ livering this message on a warm late sum­ mer evening in Frankfurt’s Römerberg square. Mr Habeck, who cultivates the im­ age of a rugged philosopher­statesman, delivers a disquisition on the nature of freedom, while Ms Baerbock, the Greens’ fi rst ever chancellor­candidate, off ers down­to­earth details on party policy. She presents her inexperience—she has done little more than hold a Bundestag seat—as a virtue when set against the failures of Germany’s establishment. The speeches make a neat pairing. “These two have brought our party to heaven,” beams Omid Nouripour, the local Green mp.

The pitch indeed proved eff ective, for a time. When the Greens chose Ms Baerbock in April, at the height of the cdu/csu in­ fi ghting, the party briefl y topped the polls.

They still hope to perhaps double their 2017

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Europe

score, but if the dream of capturing the chancellery has evaporated it is because the party believed too strongly in the pow­ er of its own myth. “I admire Annalena Baerbock, but how will the Greens pay for it all?” asks Vanessa Erb, a 19­year­old watch­ ing the speeches. The Greens have an an­ swer to this and most other questions, but they fail to cut through to an electorate that remains concerned about climate change but wary of anything that reeks of radical­ ism. Nor has the party’s deep bench, with expertise that extends to security, fi scal policy and migration, pulled the Greens out of their single­issue ghetto.

This leaves Mr Scholz out in front. His claim to Mrs Merkel’s job lies in his experi­

ence, which includes stints as federal la­ bour and fi nance minister, and seven years running Hamburg; an air of just­the­facts competence; and a demeanour so unruf­ fl ed that mini­scandals around fi nancial supervision fail to stick. “A Merkel voter in 2017 does not have to travel a long way to become a Scholz voter in 2021,” says Mr Stauss. Yet his success has rested on two conditions. One is his luck in his oppo­ nents. Had Mr Habeck or, especially, Mr Söder led their parties’ campaigns, the race would have looked very diff erent.

The other is the acquiescence of the spd’s left wing—including the two co­lead­ ers of the party—which has been surpris­ ingly complete for an outfi t with a habit of

Germany

A dash of yellow BE RLIN

The Free Democrats may be essential to forming a government

C

hristian lindner, the leader of Germany’s pro­business Free Demo­ cratic Party (fdp), is likely to emerge as a crucial fi gure after the election. Polling suggests it will be hard to form a co­ alition without the fdp. The 42­year­old Mr Lindner will relish the chance to cap his rapid political ascent with a job in­ side Germany’s next government—ide­ ally as fi nance minister. His enemies would see that as their worst nightmare.

The fdp advocates tax cuts, slashing red tape, pension reform and limits to European fi scal integration. More recent­ ly it has urged a faster easing of lock­ down rules. The party has doubled its support in the past year, thanks in part to the collapse of the conservative cdu/csu.

A snappy dresser and charismatic per­ former who regularly tops “Germany’s hottest politician” lists, Mr Lindner dominates his party to the exclusion of its other talents. At a recent campaign event in Berlin he was swarmed by ad­ mirers after delivering a fi ery speech in which he sniped viciously at the Greens’ plans for debt­funded investment.

For decades the fdp was the king­ maker of German politics, propping up coalitions led by the cdu/csu or the spd.

But the next government will probably need three parties to make up the num­ bers. That could mean a choice between a right­leaning “Jamaica” coalition, with Armin Laschet as chancellor, or an spd­ run “traffi c­light” grouping, led by Olaf Scholz. Both would include the fdp and the Greens as junior partners. In 2017 Mr Lindner aborted Angela Merkel’s at­ tempts to form a Jamaica coalition, declaring it better not to govern at all than to govern badly. “The fdp didn’t

give us a millimetre,” says Lisa Paus, a Green mp involved in the talks.

This year Mr Lindner will hope to give Jamaica another try. He gets on well with Mr Laschet, with whom he built a cdu­ fdp coalition in North Rhine­Westphalia in 2017. But as the spd’s prospects have grown, Mr Lindner has opened the door to Mr Scholz by quietly softening his stance on fi scal issues. His price for making possible a traffi c­light govern­ ment would be the fi nance ministry, a perch from which he would seek to rein in the spending plans of the spd and Greens (and France’s aspirations to deep­ en euro­zone integration). Many Greens and Social Democrats detest Mr Lindner’s brand of politics, and the feelings are mutual. From this witches’ brew of re­ sentment and mistrust, a government may somehow emerge.

vicious public rows. Mr Scholz’s personal popularity belies his party’s struggle to re­ gain voters’ trust. Just 14% of Germans say the spd is best placed to manage Germany’s problems, a number that has barely shifted even as the cdu/csu’s has plummeted. But Mr Scholz’s anointment over a year ago gave time for the party’s wings to come to terms. “I’m very grateful that the top of the spd is working closely together,” says Lars Klingbeil, the party’s secretary­general and an architect of its internal harmony. Mr Scholz’s platform has enough red meat to satisfy the leftists, and they are hungry for the power that is now within grasp.

As Germany’s politics have fragmented, its voters have become more promiscuous.

Parties have been able to fi sh for votes from across as well as within their respective progressive or conservative camps: in the 2019 European elections, for example, the Greens attracted over 1m voters who had backed the cdu/csu in the 2017 national vote. Their growth means this year is likely to reverse a decades­long shrinkage of Ger­ many’s “progressive” block of voters (see chart 2). In July a study by the Konrad Ade­ nauer Foundation, which is linked to the cdu, found that only a quarter of Germans had an unbreakable link to a single party.

(Supporters of the hard­right afd, whose views place them out of reach for other par­ ties, are the exception.) Voters are open to new governing arrangements, and indeed have elected them: there are 14 fl avours of coalition in Germany’s 16 states.

Send for plenty of coff ee So it is fi tting that the election outcome re­ mains highly uncertain. The spd’s lead ov­ er the cdu/csu is small, and there are sev­ eral unknowns. Turnout is hard to predict; an unusually high share of postal ballots is expected; and the state of the polls may create its own dynamic. Some cdu/csu wa­ verers could make a late return to the fl ock if spooked by the prospect of an spd­led government, for example.

But the diffi culty of the coalition nego­ tiations that will follow can be safely pre­ dicted. Germany is probably headed for its fi rst three­way national coalition in de­ cades; an ominous prospect given the array of domestic and international challenges that will confront it (see Special Report).

Either of the two likeliest results—a “Ja­ maica” government led by Mr Laschet, or a more left­leaning “traffi c­light” arrange­ ment under Mr Scholz, with the Greens and the liberal Free Democrats as junior partners in each case—will unite parties that disagree on much. That risks en­ trenching gridlock at just the moment Ger­ many’s partners will have hoped for re­ solve. If so, this will not be the outcome Germany’s resolutely centrist voters might have sought. But it is one that they will have earned. n

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Europe Russia’s election

The conjuror in the Kremlin MOSCOW

As if by magic the president creates a parliament to his liking

I

n mikhail bulgakov’s great novel “The Master and Margarita”, set in Stalin’s Moscow in the 1930s, Satan’s mischievous company performs magic tricks in a com­ edy theatre. It showers the audience with banknotes. People leap and scramble to catch them as they fl utter down. Next day, needless to say, they are all worthless.

Russia’s general election, theatrically staged by the Kremlin between September 17th and 19th, had a touch of Bulgakov about it. Even so, United Russia, the party that supports President Vladimir Putin, had seen its popularity fall to less than 30% in polls taken ahead of the vote. Turnout was as low as ever. But as if by magic the ballot papers gave the Kremlin more than two­thirds of the seats—and a supermajor­ ity—in the Duma, Russia’s parliament.

In the run­up to the show, the Kremlin had banned opposition politics, barred in­ dependent observers, muzzled indepen­ dent media and blocked every internet site tied to Alexei Navalny, the jailed opposi­ tion leader. It built an electronic platform that let people vote online, allowing the se­ curity service to snoop and bully without recourse to old­fashioned physical ballot­ stuffi ng.

In Moscow alone, 2m people out of 7.5m eligible voters registered to vote online.

Many had no choice. An it specialist at vtb Bank, Russia’s second­largest owned by the state, explained to your correspondent that the bank’s bosses ordered all its staff to vote online and tracked down anyone who did not, threatening them with dismissal.

The three­day voting show began with thousands of military and state workers, ferried in by their bosses, lining up in or­ derly queues to perform their duty. But millions of Russians opposed to the Krem­ lin waited until the last day, many hoping to minimise the chances of fraud.

Guided by Mr Navalny’s smart­voting system, they aimed to consolidate their protest vote by plumping for any party oth­ er than United Russia and for any fi rst­ post­the­post candidate with the best chance of beating the Kremlin nominee in whichever constituency.

In a few regions, particularly in the Urals and in Siberia, where the Kremlin has found it hardest to rig, United Russia got around 35% of the vote on a turnout of un­ der 40%, barely beating the Communist Party, which won the most protest votes. In some areas, such as Khabarovsk in the far

The Economist September 25th 2021

east, the Communists actually won. But the national result was offi cially recorded as a triumph for Mr Putin, thanks to elec­ tronic voting and old­fashioned fakery in “electoral sultanates”, such as Chechnya, where United Russia claimed 96% of the vote.

Moscow and St Petersburg, where anti­ Kremlin sentiment is strongest, set an ex­ ample. In St Petersburg, observers were dragged out of polling stations. In Moscow the cheating was more high­tech. As poll­ ing stations closed, United Russia was clearly heading for defeat in most of the capital’s constituencies. One station after another publicised results that put smart­ vote candidates in the lead. But at 4am the picture magically changed and every seat

there was marked down to United Russia.

That was after 2m online votes had been dumped into the system, showing 45% support for United Russia. Even so, there was a 15­hour delay in publishing the result of the electronic vote. “The robot decided to have a think and a smoke,” quipped Mr Navalny via his lawyers on Instagram.

Using the electoral commission's open data, Sergei Shpilkin, a respected analyst who has long tracked Russian elections, reckons that in reality only 14m people vot­ ed for United Russia in an electorate of around 110m. Another 14m votes were ac­ quired through falsifi cation, he calculates.

So the true result was the worst the Krem­ lin has had in a federal poll since Mr Putin fi rst became president 21 years ago. n

The Church of Sweden

Chosen ones An election showcases Christian democracy

U

nlike england, Thailand or Iran, Sweden no longer has a state reli­ gion. The Church of Sweden, Europe’s biggest Lutheran denomination, was formally severed from government back in 2000. But its roots are deep: it traces its history to a 16th­century squabble between King Gustav Vasa and the Pope.

About half of Swedes still belong to it.

And true to the country’s democratic spirit they get to vote on who runs it. On September 19th some 17% of the church’s 5.7m members cast ballots for its govern­ ing synod.

Some issues in the election were religious, such as a proposed ban on new confessional schools. But others were more secular, including climate change, immigration and gay marriage. That is

partly because most of the “nomination groups” that put up candidates for the synod are linked to political parties. The left seems to do better in church elec­ tions. The Social Democrats got 28% of the votes and 70 of the synod’s 251 seats, similar to their share in parliament. But the right­wing Sweden Democrats took just 8% in the church election, about half their result in the national election.

One subject of contention is whether political parties should be involved at all.

The synod’s second­biggest group is posk, a non­partisan outfi t. “We have become more of an opinion communion instead of a communion of faith,” argues Amanda Carlshamre, posk’s chair­ woman. This year the archbishop came out against a language­test requirement for Swedish citizenship. Olle Reichen­ berg, the chairman of Borgerligt Alterna­ tiv (“Bourgeois Alternative”), the biggest centre­right nomination group, thinks that should be left to parliament. Others counter that worldly engagement is part of church tradition. As one of Sweden’s biggest owners of farmland and forest the church can hardly ignore climate change, notes Jesper Eneroth, chairman of the synod’s Social Democrats.

It is not clear how much the synod can do about the church’s biggest pro­ blem, declining interest. Just 3% of Swedes attend services regularly. Most of the big doctrinal disputes are over. The church has performed same­sex marriag­ es since 2009. Conservatives want to continue to let a few old­fashioned priests opt out. Progressives do not. It seems a small point, but churches have split over less.

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The Economist September 25th 2021

Europe

Charlemagne The great sub snub

Humiliation by America will reaffi rm France’s desire to build up European autonomy

T

he tide was pleasingly high, the seaweed on the white sands of the Cornish beach carefully combed out of sight. Seven world leaders sauntered back from their seafront photo for talks.

As they walked, only one was treated to the American presidential arm, a full across­the­back hold, and for a total of 37 seconds: the French president, Emmanuel Macron. The high art of diplomatic choreography renders such fl eeting gestures priceless. Was it not a kind of consecration? Britain’s Boris Johnson may have hosted the g7 meeting in June. But France’s president got the honours.

When Joe Biden was elected, France saw a rare chance to estab­ lish itself as America’s favourite European interlocutor. Brexit, went the argument, had relegated Britain’s usefulness in its trans­ atlantic ally’s eyes. Germany was about to lose to retirement Ange­ la Merkel, the continent’s de facto leader and Americans’ Euro­ pean of choice. Who better to step in than Mr Macron, an English­ speaker who had once been selected as a French­American “young leader”? None other than Barack Obama, Mr Biden’s old boss, had called the French candidate in 2017 to wish him good luck. “Is this Emmanuel?” Mr Obama’s voice boomed through on speakerphone in the campaign offi ce in Paris, urging Mr Macron to keep cam­ paigning hard right to the end.

Moreover, France, a fellow child of revolution and America’s oldest ally, seemed to have unusually good links to the new ad­ ministration. Antony Blinken, the secretary of state, was educated at a lycée in Paris, as was Robert Malley, the special envoy for Iran.

America supplies intelligence and logistics to French­led counter­ terrorist operations in the Sahel. French and American navies train together, including in the Indo­Pacifi c, where France keeps over 7,000 troops (and has nearly 2m citizens). France’s pursuit of its own strategy in building up a geopolitical presence in the re­ gion in the face of an assertive China was “good for America”, notes Michael Shurkin, an American security analyst.

So it was with a mix of consternation, anger and pique that the French learned—just hours beforehand—of America’s new de­ fence pact with Australia and Britain, which torpedoed an existing French contract to sell submarines to Australia. To lose a big de­ fence deal was one thing. To be kept in the dark for months by three close friends, who evidently saw no place for you, was quite

another. “Allies don’t do this to each other,” snapped Jean­Yves Le Drian, Mr Macron’s foreign minister, calling it a “stab in the back” and accusing the trio of “lying, duplicity, a major breach of trust and contempt”. France recalled its ambassador to America (as well as its one to Australia) for the fi rst time since 1793. This week it was Boris Johnson who jetted off triumphantly to the White House, while Mr Macron sat nursing his wounds in the Elysée.

It is as hard to overstate the depth of the colère in Paris as it is to fathom America’s failure to anticipate it. France is as capable as anybody of acting with ruthless self­interest and disregard for others. A prickly, proud nation, it does not hesitate to say out loud what others keep to themselves. But the secret pact was as brutal a blow as any Western ally has landed on another in recent times.

Trust is the fi rst casualty. It took seven days for Mr Macron to ac­ cept Mr Biden’s call. Mr Biden agreed that there ought to have been “open consultations among allies”. Mr Macron agreed to send his ambassador back to Washington. Confi dence­building talks will be launched. But the scars will remain.

What might be the consequences of all this? In the short run, a slighted France will be a more distrustful, irascible partner on oth­ er matters, less willing to compromise or give ground on trade, say, or over regulatory disputes. France cannot dictate what the European Union does; public European sympathy for France has so far been notably scant. But it can shape and block positions.

Postponed meetings and summits may feel like poor tools of re­ taliation, but the cumulative eff ect can be corrosive.

The episode will also force the French, if not to rethink their ability to pursue their own Indo­Pacifi c strategy, then at least to confront the limits of it when measured against an Anglophone alliance. Some voices outside government, especially on the polit­ ical right, are calling for a more dramatic, de Gaulle­like fl ourish.

In 1966 the general distanced France from nato and went off to sweet­talk the Russians. Ahead of the French presidential election next April, rival candidates are calling for some sort of replay. Gé­ rard Araud, a French ex­ambassador to America, warns of “a Gaull­ ist temptation”.

The ghost of de Gaulle Mr Macron has indeed argued that France should act as a “balanc­ ing power”. Following America’s shambolic retreat from Kabul, the submarine episode has weakened the voice of French Atlanti­ cists. But Mr Macron is no anti­American. He may not seek full­on confrontation with China, but he has long urged Europeans to consider it a strategic rival on industrial and security matters.

The geopolitical conclusion that he will probably draw from all this, rather, is that he was right. That America is an unreliable ally for continental Europeans at a time of a rising China; that this is not a fl eeting trend; and that Europe needs greater self­reliance.

Which brings France back to its persistent but generally thankless eff orts to build European “strategic autonomy”.

During their call, Mr Biden acknowledged that European de­ fence “is complementary to nato”, as Mr Macron has always ar­ gued. But the concept still unnerves fellow Europeans. Most of them, especially those near the Russian border, are happy to rely on America’s security guarantee. Few share France’s willingness to splurge on defence, or its expeditionary military culture. (Germa­ ny, especially, does not.) Nobody agrees what “strategic autono­ my” actually means. Low odds, however, seldom deter Mr Macron.

After the latest snub, the unhugged French president will doubt­ less conclude that he has little choice but to keep trying. n

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46

Britain

The Economist September 25th 2021

→ Also in this section 47 Debrett’s goes digital 48 Bagehot: The coming green backlash — Read more at: Economist.com/Britain

Energy prices

Flaring up

Soaring energy bills are a problem for firms, households and the government

“T

he history book on the shelf/Is al­ ways repeating itself.” So sang abba in the 1974 Eurovision Song Contest, in the song that catapulted the Swedish band to global fame: “Waterloo”. Half a century lat­ er those words seem apt. The band has re­ united, with a new album due in Novem­ ber. Its members are going on a virtual tour, performing as cgi avatars that look like their younger selves. And in Britain, where abba dominated the charts for more than a decade after that Eurovision victory, echoes of the 1970s are growing louder, too.

Back then, Britain was struggling with energy shortages and industrial disrup­ tion. In 1974 the government limited many manufacturers to a three­day week. Today, Britain once again faces interrupted ener­ gy supply, empty supermarket shelves and government bail­outs. On September 20th Kwasi Kwarteng, the business secretary, promised Parliament that “there’ll be no three­day working weeks, no throwback to the 1970s”. As always with such political re­ assurances, the words mattered less than that they were considered necessary.

The backdrop is fast­rising global ener­ gy prices, especially for natural gas (see Fi­ nance section). They are painful for many countries, but particularly so for Britain.

Since oil and gas were discovered off its north­east coast half a century ago, gas has generated much of its electricity and heat­ ed almost all its homes. But North Sea gas is running out; and as Britain has replaced coal­fi red plants with wind power in order to reduce carbon emissions, it has become painfully dependent on natural­gas im­ ports, especially in calm weather.

Compounding the problem, during the past decade the government has allowed upstart suppliers to capture a signifi cant slice of the retail energy market with busi­ ness models that left them ill­prepared to weather market turbulence. Now, in the run­up to the cop26 climate conference in November in Glasgow, Britain must choose between letting its energy market collapse and off ering vast subsidies for fossil fuels.

The origins of the mess lie in the 1980s and 1990s, when privatisation created an oligopolistic energy market dominated by

the “Big Six”, which paid their shareholders juicy dividends and their bosses fat sala­ ries. The government responded to anger over high energy bills with further liberal­ isation, which created a fragmented mar­ ket (see chart on next page). Some of the new entrants were innovative, such as Bulb, which off ers consumption­tracking apps, and Octopus, which discourages consumption when demand is high with dynamic pricing. But most were thinly capitalised and produced no energy, mere­ ly buying it on global wholesale markets and selling it on. Some paid little attention to ensuring continuity of supply or hedg­ ing against price fl uctuations.

Such me­too operations were always vulnerable to a demand squeeze. But the risks rose in 2017 with the closure of a big gas­storage facility, which left Britain able to store just 2% of its annual demand. Oth­ er big gas importers, by contrast, can store 20­30%. And the risks rose further in 2019, when the government capped consumer prices in response to continued grumbles about high energy bills.

The perfect storm came this summer.

As pandemic restrictions eased, global de­ mand for energy rose. Gas supply in Rus­ sia, a big producer, was disrupted, and unusually calm weather stilled British wind turbines. In August Ofgem, the in­ dustry regulator, said that from October the price cap would rise by 12%. But since then the wholesale price of gas paid by British energy fi rms has risen by more than

012

The Economist September 25th 2021

Britain

Class Fuel gauge

Baron net

Britain, number of domestic fuel suppliers 80 Gas and electricity Electricity Gas

60

40

Debrett’s, a guide to toff s, goes digital

20

D

0 2004 06

08

10

12

14

16

18

21

Source: Ofgem

70%. The result is that British energy fi rms are tied into contracts to supply gas to households at far less than they must pay to get it. Seven have failed since August, and industry insiders say that without gov­ ernment intervention, dozens more will.

Ofgem, says the boss of one of the bigger fi rms, has been “asleep at the wheel”.

Some energy­intensive businesses found themselves thrust into a no­day week. cf Industries, an American­owned fertiliser company, ceased production at its two British sites, saying it was no longer economic. The eff ects rippled through the food­supply chain. Commercial carbon di­ oxide (CO2), a by­product of fertiliser pro­ duction, is used to stun animals before slaughter, package fresh food and keep food cool during transport. In normal times, cf Industries accounts for more than half of Britain’s supply. The British Meat Processors Association, a trade body, warned of imminent meat shortages.

On September 21st the government an­ nounced that following talks, cf Indus­ tries would be restarting CO2 production.

Subsidising its energy prices would, ad­ mitted George Eustice, the environment secretary, cost “many millions”.

The government can expect to have to fork out much, much more. When a retail energy fi rm fails, Ofgem transfers its cus­ tomers to another provider. This year, however, the survivors are reluctant to take on what may add up to millions of loss­ making accounts. Ofgem is likely to raise the energy­price cap again next spring, but not by enough to bring bills in line with global prices. So the government is consi­ dering underwriting losses from trans­ ferred customers, or forming a temporary, publicly owned and loss­making fi rm to supply them over the winter.

Either option will be expensive. Pre­ cisely how expensive depends on how ma­ ny fi rms fail, how soon and how high gas prices go. Offi cials say they hope that the cost to taxpayers can be kept “in the bil­ lions”. After a decade of neglecting energy security, the bill is coming due. n

ropdown menus can be telling. Buy a subscription to the Times, a conserva­ tive paper, and under the “Titles” option it off ers you a duly conservative selection: “Mr”, “Mrs”, “Miss”, “Ms” and “other”. The left­leaning Guardian off ers no titles at all.

Debrett’s is diff erent. It off ers not merely “Mr” and “Mrs” but also “Lord”, “Lady”, “Sir”, “Hon.”, “Capt.”, “Col.” and “Rev.” Sign­ ing up is less like online shopping than as­ suming a part in a Jane Austen adaptation.

Dropdowns are needed because the publication has just gone digital. This is in many ways disappointing. Debrett’s Peer­ age & Baronetage, a snob’s guide to Brit­ ain’s aristocracy, feels as though it ought to be written on vellum and served by butlers, rather than hosted on internet servers.

Austen’s “Persuasion” opens with Sir Walt­ er Elliot thumbing the Baronetage’s much­ loved pages. Nancy Mitford mocked its chronicles of “ancestors with P.G. Wode­ house names” and “Walter Scott fates”. In Evelyn Waugh’s “Brideshead Revisited”, when Sebastian Flyte is asked about his family, he says crisply: “There are lots of us. Look them up in Debrett.”

Its tissue­fi ne pages used to whisper discreetly of a forgotten world, one of sil­ ver spoons and iron conventions that co­ vered the correct way to address a duke (“Your Grace”); a duke’s daughter (“Your La­ dyship”) and “Divorced Ladies” (however you like). But as times change, so must for­ mats. When the queen has a Twitter ac­ count (@RoyalFamily) and 4.6m followers, it was perhaps inevitable that Debrett’s

Nan to her friends

would move online.

It has also branched out, not quite sell­ ing the family silver but allowing the lower classes to gaze on it, like an aristocrat opening the country seat for afternoon teas. It off ers advice on etiquette, includ­ ing table manners (“it is vulgar to bite into bread”); Zoom (“never eat on­screen”); and social kissing (“under no circumstances should there be a suggestion of saliva”).

Keeping it perfectly up to date is, says Wendy Bosberry­Scott, its editor, all but impossible, since “people are born, get married and die every day”. Here, being digital is an advantage. One year a particu­ larly important duke died the day it went to press: Debrett’s had to call the printer and replace the page. “It cost a fortune.”

The entire database, dating back to 1769, is now searchable: 2,000 hereditary titles, more than 700 life peers and around 150,000 assorted relatives—or, as Debrett’s calls them, “collateral” (aristocrats, like ac­ cidents, cause fallout). Even including col­ lateral, it covers little more than 0.2% of the British population. It is an infl uential 0.2%, including many prominent politi­ cians, among them David Cameron, the former prime minister whose rash deci­ sion to hold a referendum unexpectedly took Britain out of the European Union (motto: “Prudently and Constantly”).

But Britain, though still class­ridden, is less dominated by titled toff s today. In the 1860s, three­quarters of mps were from pa­ trician backgrounds; now they are excep­ tions, not the rule. This is good for Britain, but bad for Debrett’s. Walk into a library in 1900 and you would have found shelves of such volumes: Debrett’s, “Burke’s Peerage” and “Kelly’s Handbook”: class bound in red cloth. Now Kelly’s has gone; Burke’s was last printed in 2003; and the most recent print edition of Debrett’s, in 2019, had a run of just 700. It was almost certainly the last.

As few know better, things are born, and die, every day. n

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48

Britain

The Economist September 25th 2021

Bagehot Dirty politics

An anti-green backlash could reshape British politics as radically as Brexit did

W

hatever a british voter’s natural political hue—Tory blue, Labour red or Liberal Democrat orange—these days it ends up green­tinged. The Tory government talks eff usively about “building back greener”. Labour wants a “green industrial revolu­ tion”. Liberal Democrats have used their position as the third party to argue for everybody to go further and faster. And then there are all the people who want to raze the carbon economy to the ground the day after tomorrow: not just the Green Party but also extremist groupuscules such as Extinction Rebellion and Insulate Britain.

Which leaves a gap in the market for something diff erent: anti­ green politics. Brexit transformed Britain by tapping into ordinary people’s resentment of distant elites, and anti­greenery could do the same. Environmentalism is driven by populists’ two big bogeymen, scientifi c experts and multilateral institutions. Green campaigners vie to befuddle the public with acronyms and jargon.

Multilateral institutions override democratic legislatures in order to co­ordinate global action. In the public mind, greenery is com­ ing to mean global confabs that produce yet more directives, and protesters who block city centres and motorways.

Greenery suff ers from the classic problems of technocratic policymaking, namely off ering distant rewards in return for im­ mediate sacrifi ces and imposing uneven costs. Over­50s, the most reliable voters, won’t be around to see the world boil. Poorer peo­ ple are likely to suff er more than richer ones from the green transi­ tion, not just because they have less disposable income but also because they are more likely to work in the dirty economy. The im­ pression of injustice is reinforced by the fact that many of the most vocal green activists have a material interest in the green economy as bureaucrats, lobbyists and entrepreneurs.

A fuel­price rise in 2018 inspired France’s gilets jaunes; Ger­ many’s Alternative für Deutschland and Finland’s Finns Party have lambasted green hysteria. In Britain, by contrast, anti­green­ ery is still nascent. Some on the Tory right have complained that their party is in the grip of the green lobby. A few mps in the “red wall”—once­safe Labour seats in northern England that turned To­ ry over Brexit—have warned that green levies on driving could see those voters switch back again. The closure of some London streets to through­traffi c has sparked protests.

But such rows are about to get a lot louder. Turbulence on the global energy market is drawing unfl attering attention to British energy suppliers, which are struggling with the transition from coal­ and gas­fi red plants to renewables. The more the business secretary, Kwasi Kwarteng, says about there being “absolutely no question of the lights going out”, the more consumers will worry.

And other environmental policies on the horizon will also hit them hard. From 2030 the sale of new petrol and diesel cars will be banned. The electric cars that will replace them are rapidly im­ proving, but not yet as cheap or as convenient. For city­dwellers it is hard enough to fi nd parking without having to look for a charg­ ing­point too, and long journeys require planning.

Since the discovery of gas in the North Sea in 1965, most British homes have used the fuel to heat their homes. But the government plans to take gas­fi red boilers off the market in the coming years, to be replaced by hydrogen boilers or heat pumps. The date for the switchover is slipping, since neither technology is ready for mass roll­out. Air­source heat pumps are larger than gas boilers, pro­ duce lower temperatures and cost much more. People’s enthusi­ asm for greenery may reach its limits if familiar, well­functioning products are replaced by more expensive, inferior ones.

In the past decade climate­change denialism has given way to something cannier and harder to pin down. Nigel Farage, the for­ mer leader of the uk Independence Party and a major force behind Brexit, claims that he is as green as the next man—indeed that he voted for the Green Party back in the 1980s—but that he’s in favour of “sensible environmentalism” rather than the establishment kind that taxes “poor people to give money to rich people and big corporations while China’s going to ignore it all”.

Anti­greens are also seeking to reshape politics indirectly: not just by creating new parties, but by changing the hue of the estab­ lished ones from inside. For neither of Britain’s biggest parties is as deep­dyed green as it appears to onlookers. The Conservative Party certainly has big names who preach environmentalism, like Zac Goldsmith, a posh Brexiteer. But it has always also been the party of homeowners who care about their energy bills, motorists who want to get the last mile from every gallon and older people who don’t want to change their ways. More recently, they have been joined by red wall voters with little spare cash. Labour, for its part, is an uneasy coalition of graduates, who cheer every green initiative, and lower­paid workers, who are nostalgic for the days of well­paid jobs in heavy industry and primarily concerned with making ends meet.

Hot air emissions How to avert an anti­green backlash? Politicians need to avoid un­ forced errors, such as switching over from gas boilers before reli­ able replacements are ready. They need to shield vulnerable groups from the costs of the energy transition, remembering how the mood turned against globalisation when politicians failed to honour promises to compensate the losers. They need to see the world through the eyes of people who accept that climate change is a problem but must ceaselessly struggle to get by in the here and now. The prime minister, Boris Johnson, won easy applause at a un round table on climate action this week by expressing frustra­ tion that the “something” the world is doing to limit global warm­ ing is “not enough”. The audience he really needs to convince is the one that laughed along to his provocations before he re­en­ tered Parliament in 2015, such as mocking wind power as too weak to pull the skin off a rice pudding. n

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The Economist September 25th 2021

Influenza

Northern exposure During the pandemic the world has largely escaped flu. But as the northern winter draws in, scientists fear it may return

I

n september 2020 doctors and public­ health offi cials in the northern hemi­ sphere were on high alert. They did not know how covid­19 would behave in the fi rst winter of the pandemic. Respiratory viruses tend to surge during cold weather.

And there were the usual concerns about infl uenza, the shape­shifting virus that sickens and kills many people every year.

At worst, doctors feared they would see si­ multaneous outbreaks of covid­19 and fl u which would overwhelm hospitals and send deaths soaring—a “twindemic”.

It never materialised. Covid­19 cases continued to rise in much of the world in late 2020 and early 2021 but the wave of in­ fl uenza never struck. And yet today those same experts are worried once again. Flu’s absence in 2020­21 has probably made the prospects for 2021­22 worse: outbreaks could occur sooner, last longer and aff ect many more people than usual.

Seasonal fl u is caused by a group of vi­ ruses that circulate around the world in and between birds, humans and other mammals. The fl u season in the northern hemisphere—loosely defi ned for this pur­

pose as North America, Europe, north Afri­ ca and West Asia—usually starts around October each year and peaks the following January or February. In the southern hemi­ sphere the season begins around May and peaks between June and August.

Two types of virus cause winter fl u. In­ fl uenza A viruses originate in birds and pigs. The h1n1 and h3n2 subtypes (named for the structures of two proteins on their surfaces) also infect humans. Infl uenza B infects only humans.

As these viruses mutate and spread, they are adept at reconfi guring the pro­ teins that sit on their surfaces, making them less recognisable to people’s im­ mune systems, even those that have en­ countered similar viruses before. As a re­ sult, fl u vaccines need to be updated and re­administered every year.

It takes manufacturers at least six months to create, test and manufacture large quantities of fl u vaccines, so they need to decide well ahead of the fl u season which versions of which viruses vaccines should target. It is at this point that the World Health Organisation (who) steps in.

The Global Infl uenza Surveillance and Response System (gisrs) is a network of laboratories and public­health institutions in 123 countries that collect respiratory samples throughout the year. They se­ quence the genes of any infl uenza viruses and characterise the proteins on their sur­ faces to build a detailed picture of the most prevalent infl uenza viruses in circulation, how those viruses are evolving and which new ones are emerging.

Armed with these data, every February and September the who brings together experts to recommend which strains of fl u should be targeted by the forthcoming vac­ cines for the northern and southern hemi­ spheres respectively.

In February 2021 those experts, using information from the viruses circulating in previous months in the southern hemi­ sphere, selected four viruses for this year’s vaccines for the northern hemisphere. By the start of October, those vaccines should start going into arms.

The fi rst big uncertainty for the coming winter is whether they picked the right vi­ ruses. This is always a problem but it is es­ pecially acute this year. Far less informa­ tion was available from gisrs because the 2020­21 fl u season was such a non­event across the world (see chart on next page).

Less than 0.2% of samples globally tested positive for infl uenza between September 2020 and January 2021, according to the who. Between 2017 and 2020 the rate was 17%. The number of fl u hospitalisations in America in the 2020­21 season was the low­

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est since such records began in 2005. The Centres for Disease Control and Prevention said it received one report of a child dying of fl u in the 2020­21 season in America, compared with 199 in 2019­20.

What explains such low levels of fl u?

Because of covid­19, people were wearing face masks, social distancing, washing their hands, avoiding public transport and staying at home. This also helped limit the spread of other respiratory viruses, includ­ ing infl uenza.

This happy result has a troubling corol­ lary. Vaccines for infl uenza are generally less eff ective than those for covid­19; they prevent about 70% of detectable infections in healthy adults and about 50% in the el­ derly. How well a vaccine works is a func­ tion of how well its components match the viral strains that a person actually encoun­ ters. When they are poorly matched, vac­ cines are less eff ective at preventing both infection and severe disease, resulting in worse epidemics. Given the paucity of in­ formation available about which strains of fl u are circulating, the Academy of Medical Sciences (ams) in Britain reckons the like­ lihood of mismatches is higher this year.

A second big unknown is how people’s immune systems, which have largely avoided infl uenza for more than a year, will respond when they do encounter it.

The mild or non­existent infl uenza season of 2020­21 was probably welcome at a time when covid­19 was killing tens of thou­ sands of people and putting many more in hospitals. But it also means that many few­ er people will have been exposed to the cir­ culating fl u viruses in the past year so the levels of natural immunity in populations will be relatively low. A wave of infl uenza in such an environment “could be proble­ matic”, warned the ams.

Even those who have previously been exposed are at risk. Immunity diminishes over time. Worse, fl u viruses change rapid­ ly, so the immune system’s memory of one season’s fl u may be of limited use against new viruses. Some have little or no protec­ tion against fl u—babies and young chil­ dren who have never been exposed to it.

Research on previous fl u outbreaks in America provides some clues for what might happen in 2021. A study in 2013 ex­ amined what happened after mild winters, when rates of infl uenza transmission tended to be lower than usual and there­ fore resulted in lower­intensity epidemics.

The researchers found that 72% of the sub­ sequent epidemics were more severe than average. They started 11 days sooner and the epidemic growth rate was 40% higher.

Their severity was probably exacerbated by their earlier onset because fewer people would have been vaccinated at that point.

Modelling by the ams has shown that, if Britons returned to their pre­pandemic way of life, the country could at worst face

The Economist September 25th 2021

a winter infl uenza epidemic 2.2 times more deadly than normal. In recent years fl u has typically killed 10,000­30,000 peo­ ple annually in England. The 2017­18 sea­ son was the most recent bad season, with about 26,000 deaths.

Respiratory syncytial virus (rsv) pro­ vides more clues as to what could be in store for the northern hemisphere. rsv is a major cause of hospitalisation and death in young children, particularly those less than a year old. Reports from around the world showed a 98% reduction in cases of rsv during the pandemic. But researchers in Australia also found that, after physical distancing restrictions had been relaxed in the last few months of 2021, rsv cases shot up. They peaked in December (the coun­ try’s summer), instead of the usual June or July (its autumn/winter). The peak itself was almost three times higher than usual and there were many more cases of infec­ tion in older children. Doctors in New York City found similar results after March 2021.

In the grippe of winter If infl uenza or rsv surge when covid­19 lev­ els are high, some doctors worry that peo­ ple could be struck by several respiratory viruses at once. Around a fi fth of children who end up in hospitals with bad lung dis­ ease are infected with multiple viruses, says Stephen Holgate, a pharmacologist at the University of Southampton. Growing evidence suggests that infl uenza and sars­ cov­2 can coexist and that they interact negatively, he explains. The ams reckons that being infected with infl uenza A makes people more susceptible to sars­cov­2. It also worries that the wider circulation of other respiratory viruses could lead to more dangerous variants of sars­cov­2.

Preventing a “twindemic” in 2021­22 will take three steps, argues Dame Anne Johnson, an epidemiologist at University College London and president of the ams.

First, a concerted eff ort to get more vac­ A fluid situation Global number of respiratory samples testing positive for influenza, by type*, ’000 50 B (Lineage not determined)

B (Victoria lineage) B (Yamagata lineage)

40

A (Not subtyped) A (H3) A (H1N1)

30

1 0

20 10

Aug Sep

0 2019 Source: WHO

20

21

*A (H1) and A (H5) excluded as too small to see

cines—for both covid­19 and infl uenza— into arms. Since natural immunity to fl u is probably at its lowest for years around the world, immunity via vaccines will need to make up the shortfall. That will mean jab­ bing those normally at high risk, such as the elderly, pregnant women and health­ care workers, but also children, who are prodigious spreaders of infection.

Second, since the symptoms of various respiratory illnesses including covid­19 are similar, doctors and clinicians need rou­ tine access to multiplex testing, where throat swabs are tested for diff erent virus­ es at the same time. Rapid tests for infl uen­ za should readily be available in hospitals, clinics, care homes and pharmacies, says Professor Johnson. Identifying infections is useful—the timely use of antivirals can shorten an episode of fl u.

The third way to fend off the bug is for ordinary people to practise what Professor Johnson calls “respiratory hygiene”. Social­ distancing rules may no longer be in force in much of the world, but people should still wear masks in crowded indoor envi­ ronments. They should also work from home where possible and socialise out­ doors, she says.

Scientists will face the coming fl u sea­ son using the tools they know work. But the current process for making fl u vaccines is slow—it takes six months and involves incubating viruses in chickens’ eggs or mammalian cells before carefully extract­ ing and purifying proteins that go on to make the building blocks of the vaccines.

The success of messenger rna (mrna) vaccines for covid­19 has spurred scientists to investigate how to use the same technol­ ogy against fl u. mrna should speed up the process, leaving less time between con­ cocting the vaccine and the viruses mutat­ ing. And mrna vaccines should be easier to tweak if new strains emerge.

In July Moderna, an American fi rm that developed a successful mrna covid­19 jab, began a trial of its mrna fl u jab, which tar­ gets all four virus strains recommended by the who. Pfi zer, the other American mrna covid­19 vaccine­maker, has also adapted its technology to make a candidate fl u vac­ cine. Seqirus, a British drug fi rm, has an­ nounced plans to begin clinical trials of its mrna fl u vaccine in late 2022. It wants to use self­amplifying messenger rna (sa­ mrna). A typical mrna vaccine tells a per­ son’s cells to make an antigen (against which their immune system can then make antibodies). sa­mrna vaccines also instruct the body’s cells to replicate the mrna itself. That should mean a much smaller vaccine dose can elicit the same immunological result, useful if you need to vaccinate people against multiple fl u vi­ ruses at once—or keep boosting immunity for covid­19, which is set to join infl uenza as a regular visitor every winter. n

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The Economist September 25th 2021

Chipmaking

Neutral but not idle LEUVE N

The technological brain trust at the heart of the $550bn global chipmaking business

L

euven is perhaps best known to the general public as the birth place of Stella Artois. Among chipmakers the Belgian city’s biggest claim to fame sits in a squat building not far from the Leuven Institute for Beer Research. Metal banding lends its facade the glittering look of a silicon wafer etched with microcircuitry. Inside, its low­ er fl oors hum with the noise of $3bn­worth of some of the most complex equipment humanity has ever devised. The offi ces above house hundreds of the planet’s keenest semiconductor engineers dream­ ing up the future of chipmaking.

The building (pictured) is the head­ quarters of the Interuniversity Microelec­ tronics Centre. imec, as it is better known, does not design chips (like America’s In­ tel), manufacture them (like tsmc of Tai­ wan) or make any of the complicated gear in its basement (like asml, a Dutch fi rm).

Instead, it creates knowledge used by everyone in the $550bn chip business. Giv­ en chips’ centrality to the modern econ­ omy—highlighted by the havoc wrought by current shortages—and increasingly to modern geopolitics, too, that makes it one of the most essential industrial research­ and­development (r&d) centres on the planet. Luc Van den hove, imec’s boss, calls

it the “Switzerland of semiconductors”. imec was founded in 1984 by a group of electronics engineers from the Catholic University of Leuven who wanted to focus on microprocessor research. In the early days it was bankrolled by the local Flemish government. Today imec maintains its neutrality thanks to a fi nancial model in which no single fi rm or state controls a big share of its budget. The largest chunk comes from the Belgian government, which chips in some 16%. The top cor­ porate contributors provide no more than 4% each. Keeping revenue sources diverse (partners span the length and breadth of the chip industry) and fi nite (its standard → Also in this section 52 Two shocks to American shopping 54 Berlin Inc 56 Universal Music is a hit 56 Goodbye, handshake

56 Japan’s battery-makers power up 57 Bartleby: Stakeholder blues 58 Schumpeter: Thiel v the Valley

research contracts last three to fi ve years) gives imec the incentive to focus on ideas that help advance chipmaking as a whole rather than any fi rm in particular.

A case in point is the development of extreme ultraviolet lithography (euv). euv is a delicate process involving high­po­ wered lasers, molten tin and ultra­smooth mirrors. The bus­sized machines that gen­ erate euv are today all made by asml and used by tsmc and Samsung, a South Kore­ an chipmaker. It took 20 years of r&d to turn the idea into manufacturing reality. imec acted as a conduit in that process.

That is because euv must work seamlessly with kit made by other fi rms. Advanced toolmakers want a way to circulate their intellectual property (ip) without the large companies gaining sway over it. The large companies, meanwhile, do not want to place all their bets on any one experimen­ tal idea that is expensive (as chipmaking processes are) and could become obsolete. imec’s neutrality allows both sides to get around this problem. It collects all the necessary gear in one place, allowing pro­ ducers to develop their technology in tan­ dem with others. And everyone gets rights to the ip the institute generates. Mr Van den hove says that progress in the chip in­ dustry has been driven by the free ex­ change of knowledge, with imec acting as a “funnel” for ideas from all over the world.

This model has lured ever more con­ tributors. Today “several hundred” are ac­ tive at imec at any one time, the institute says. They range from startups to the stars of the chipmaking fi rmament, from asml to tsmc. Pat Gelsinger, Intel’s newish boss, is eff usive in his praise for the outfi t. Even

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as their number has grown, individual partners have also become more generous, in part to keep pace with the rising price of all the chipmaking equipment that imec must procure (even if it gets a lot of it from collaborators at reduced rates). As a result, imec’s revenues, which come from the re­ search contracts and from prototyping and design services, doubled between 2010 and 2020, to €678m ($773m). Its annual takings are already on the order of those of giant charities such as the Ford Foundation or the American Cancer Society, and growing roughly in line with the booming chip business (see chart).

The deepening rift between America, home to some of the industry’s biggest fi rms, and China, which imported $378bn­ worth of chips last year, threatens imec’s spirit of global comity. China’s chip indus­ try is increasingly shielded by an overbear­ ing Communist Party striving for self­suf­ fi ciency, and ever more ostracised by out­ siders as a result of American and Euro­ pean export controls. All this limits the extent to which imec can work with Chi­ nese semiconductor companies.

It is a matter of public record that imec has worked with Chinese fi rms in the past, including Huawei, a telecoms­gear giant with a chip division that has been hobbled

by American sanctions, and smic, China’s biggest chipmaker. Chinese make up 3.5% of people working at imec, the fi fth­largest group and ahead of Americans at 1.5%. imec has a unit in Shanghai. Still, no Chi­ nese tools are visible in its basement. imec would not comment on individual part­ nerships but says it has “a few engage­ ments with Chinese companies, however not on the most sensitive technologies, and always fully compliant with current European and us export regulations and directives”. Mr Van den hove adds that imec has no “major partnerships” with up­ and­coming Chinese toolmakers.

Less chipmaking know­how fl owing to China and less streaming out of it means that Chinese engineers’ ideas can no lon­ ger be integrated with the global technolo­ gy base of which imec is the custodian.

There is little that imec can do about the growing distance between the Western and Chinese techno­spheres. So it is focusing instead on what it does best: pushing the cutting­edge of chip manufacturing.

A hulking machine made by suss MicroTec, a German fi rm, scans chips to create a 3d image so that multiple proces­ sors can be aligned and affi xed—fi ddly business at nanometre scales. Elsewhere in the building Peter Peumans, who runs imec’s health­tech portfolio, hands over a prototype developed during the pandemic that uses a custom silicon chip to cut dna­ sequencing times from hours to minutes.

Xavier Rottenberg is developing semi­ conductor­based ultrasound sensors that

The Economist September 25th 2021

IMEC, you pay IMEC revenues, €m 800 600 400 200 0 1991 95

2000

05

10

15

20

Worldwide semiconductor shipments By category, $bn 600

Sensors and optoelectronics Integrated circuits Analogue Logic Memory

400

200

0 1991 95

2000

05

10

15

Sources: IMEC; World Semiconductor Trade Statistics

21* *Forecast

can be printed out using the technology to make fl at­screen tvs, which may lead to scanners much larger than today’s hand­ held ones and able to capture the whole bo­ dy at once at a higher resolution. Such work keeps imec’s neutral ideas factory awhir. Maintaining Swiss­like neutrality in chip geopolitics will be tougher. n American retail

Two new shocks for shopping NEW YO RK

Retailers contend with shortages and a stampede back to the aisles

V

isitors to a big supermarket in Amer­ ica these days could be forgiven for feeling disoriented. From one angle, all­ American consumerism is on full display, with throngs struggling to steer overfl ow­ ing trolleys. Retail sales (excluding cars) rose at a seasonally adjusted rate of 1.8% in August, compared with July, the fastest since March. Other images, though, look distinctly unAmerican. To their horror, some shoppers see empty shelves where their favourite brands of biscuits, deter­ gents and loo roll typically sit—the result of supply­chain disruptions as outbreaks of the infectious Delta variant of covid­19 shut factories and ports around the world.

Unlike early in the pandemic, when shops were stripped bare by panic­buying, America’s consumers mostly have alterna­

tives to pick from. But the shortages are a sign that things in the country’s $5.6trn re­ tailing industry are not back to normal. If the supply shock weren’t enough, retailers must also deal with demand from shop­ pers once again keen to stroll the aisles rather than scroll through apps. Having survived the initial pandemic upheaval, shops are in the throes of another.

Start with the bottlenecks. Congestion in ports from China to California has pushed shipping rates to record highs. Do­ mestic trucking costs are up, too, owing to a surge in online deliveries. This is less of a problem for premium goods like iPhones than for the cheaper wares peddled by big retailers, where shipping makes up a big­ ger slice of the list price. Walmart went so far as to charter vessels directly to ensure steady supplies.

Companies also face a shortage of la­ bour. Depending on whom you ask, this is down to workers being spooked by Delta, spoilt by generous covid­era benefi ts or re­ thinking their lives and careers in the wake of the pandemic. Whatever the reason, the result is an absence of customer service at big stores. Helpers who normally direct shoppers to the right shelf are nowhere to be found. With many cash registers closed, long queues form at the few open ones. In­ store placards that used to promote pro­ ducts now advertise vacancies.

In August Walgreens, a chain of chem­ ists, said it would raise wages, matching a move earlier in the month by its main rival, cvs. Target raised wages earlier this year.

Walmart has done so several times in the past 12 months. As with higher shipping costs, this puts pressure on margins. Addi­ tional expenses might be coming from the federally mandated covid­19 tests for em­ ployees who refuse to get vaccinated. This month the Retail Industry Leaders Associa­ tion, which counts Target among its mem­ bers, warned about insuffi cient domestic testing capacity to meet this requirement.

The shift back to bricks and mortar pre­ sents a second set of problems. E­com­ merce, which shot up from 11% of Ameri­ can retail sales before the pandemic to nearly 16% in the panicky second quarter of 2020, has fallen back to 13% of the total.

Target’s comparable digital revenues grew by 10% year on year in the three months to June, down from a rate of nearly 200% the year before. Meanwhile, offl ine sales shot up by a third in the same period, to $1.4trn, handily outpacing e­commerce (see chart 1 on next page). Coresight Research, a fi rm of analysts, reckons that so far this year shop openings have exceeded closings (see chart 2). If the trend continues, it would be the Sign up to our weekly newsletter, Money Talks, for more analysis of the biggest stories in economics, business and finance www.economist.com/moneytalks

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The Economist September 25th 2021

fi rst time since 2016 that America has add­ ed net new outlets.

The retailers’ investments in online ca­ pacity will not go to waste. Once seen as a costly mistake, Walmart’s $3.3bn takeover in 2016 of Jet.com gave America’s mightiest conventional retailer a platform on which it built a successful digital business. Some 3,000 of its 4,700 domestic stores now of­ fer same­day deliveries. Similarly, Target’s $550m acquisition of Shipt, a same­day de­ livery platform, a year later formed the ba­ sis of an integrated technological network that now stretches from a data centre in In­ dia to its 2,000 or so stores in America.

Even Amazon recognises that the fu­ ture is “omnichannel”, mixing digital and in­store experiences, and plans to expand its piddling physical footprint, maybe with a chain of department stores. Americans’ rediscovery of the pleasures of in­person shopping helps explain why the online giant no longer looks unstoppable; its share of American retail sales dipped from 7.8% in the fi rst quarter to 7% in the subse­ quent one (though it is above its pre­pan­ demic level of under 6%). Target, Walmart and their peers stand to benefi t more in the short run from renewed physical shopping than the beast of Bezosville. But a shopper stampede to outlets requires another re­ shuffl ing of resources, before the retailers’ foray into cyberspace has been completed.

Investors have faith that the biggest fi rms can withstand the pandemic after­ shocks, as they did the original covid­ quake. The combined market value of the three largest bricks­and­mortar general­ ists—Costco, Target and Walmart—has swelled to some $730bn, from $520bn or so at the start of the pandemic. In the past year Costco’s and Target’s share prices have outperformed that of Amazon by a factor of two and nearly four, respectively.

Beyond the big fi rms, which have more or less maintained their market shares in the pandemic, the picture is one of wreck­ age. As in many sectors, covid­19 has put struggling merchants out of their misery.

Last year nearly 9,000 shops shut for good, 1

Retail therapy United States, quarterly retail sales, $trn

1.75 Online

1.50 1.25 1.00 0.75

Offline

0.50 0.25 0

2018

19

Source: US Census Bureau

20

21

2

After the apocalypse United States, retail stores*, ’000 Openings

6 3 0 -3 -6

Net openings

-9 Closures

-12

2012 13 14 15 16 17 18 19 20 21† Source: Coresight Research

*Based on data from 400 retailers †To September 17th

while just over 3,000 opened, according to Coresight. Casualties include such venera­ ble names as Neiman Marcus (a depart­ ment store for the well­off ) and JCPenney (one for everybody else). Targets and Wal­ marts may be abuzz with activity. Derelict malls marooned amid the cracked con­ crete of empty parking lots have replaced rustbelt factories as the poster children of creative destruction’s toll. n Enterprise in Germany

Berlin Inc BE RLIN

The capital reasserts itself as a business hub

C

onventional wisdom has it that the capital of Europe’s most powerful economy is poor, bolshie, chronically in­ debted and utterly reliant on subsidies from richer states. The debacle of the con­ struction of the Berlin­Brandenburg air­ port, completed in 2020 nine years late and more than €4bn ($4.7bn) over budget, con­ fi rmed every prejudice about the city. A po­ litical storm is brewing over property fi rms and rents (see Finance section).

Reputations are hard to shed. But Ber­ lin’s business circles are trying. During the tenure of Klaus Wowereit, mayor from 2001 to 2014, no fi rm in the dax, the index of Germany’s bluest chips, called Berlin its home. After the dax’s expansion on Sep­ tember 20th from 30 to 40 companies, fi ve have headquarters in the city. Zalando (an online fashion retailer) and HelloFresh (a pedlar of meal kits) joined three other Ber­ liners, Deutsche Wohnen (one of the belea­ guered real­estate fi rms), Siemens Energy (a spin­off from the engineering giant) and Delivery Hero (a food­delivery darling), themselves recent additions. Berlin’s share of Germany’s total market capitalisation has risen since 2000 (see chart).

Before the second world war Berlin was a cradle of mighty fi rms such as Daimler and Siemens. After the city’s partition by the victorious allies, many companies moved their offi ces and factories to West Germany. Banks moved to Frankfurt, pub­ lishing houses to Hamburg and industry to southern Germany. The exodus intensifi ed after the erection of the Berlin wall in 1961.

After East and West Germany reunifi ed in 1990 these businesses had little reason to move back. Instead the city attracted art­ ists and aspiring club owners, lured by low rents and countless abandoned factories and warehouses that made for fabulous studios and party venues. These new, cool residents had lots of fun, made little mon­ ey and paid hardly any tax. In 2003 Mr Wo­ wereit described his city as “poor but sexy”.

It is that sexiness that now helps ex­ plain Berlin’s business revival. The young and hip it attracted brought fresh talent, including entrepreneurs and techies. In August Google announced that a chunk of its €1bn investment in cloud­computing infrastructure will go to Berlin (alongside Hanau, near Frankfurt). Amazon Tower, a skyscraper in Berlin’s Friedrichshain dis­ trict named after its biggest occupant, will house 3,500 of the online giant’s workers.

In the fi rst half of this year Berlin­based startups received €4bn in venture capital, half the German total. In spring Olaf Koch, the former boss of Metro, a retailer, set up a food­tech investment fund in the city with the aim of raising €500m.

Between 2017 and 2020 Berlin’s digital economy expanded by 30%, ten times fast­ er than its overall output. Last year, as the pandemic put a premium on all things dig­ ital, employment in Berlin tech increased by 8.5%. Ramona Pop, Berlin’s economy minister, expects jobs in the city’s digital industry to double in the next few years to 200,000. “Berlin is spearheading the dig­ itisation of the entire German industry,” she proclaims. After making Germany poorer for decades Berlin is making it a lit­ tle richer: in 2019 the city’s gdp per person was slightly above the national average. n Ich bin ein Berliner Germany Stockmarket capitalisation, €trn Company HQ location Berlin Rest of Germany

Listed companies based in Berlin, % 3

8 6

2 4 1 2 0

0 2000 05 10 15 21* Source: Bloomberg

2000 05 10 15 21* *At September 22nd

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The Economist September 25th 2021

Universal Music Group

Gimme! Gimme!

Gimme!

Investors rush to sample the music-streaming boom

A

rockstar’s welcome greeted Univer­ sal Music Group when it launched on Amsterdam’s Euronext exchange on Sep­ tember 21st in Europe’s largest listing of the year. Giddy investors all but threw their knickers at the newly public company, whose share price fi nished the day up by 36%, valuing the world’s biggest record label at €45bn ($53bn).

Not long ago Universal looked like a

fl op. In 2013, as digital piracy ravaged the music industry, SoftBank, a Japanese group, bid €7bn for the label. Vivendi, Uni­ versal’s French owner, was thought mad for turning down the off er. In fact the deci­ sion was inspired. A streaming boom has since lifted worldwide recorded­music revenues by half. Two­thirds of last year’s sales of $22bn went to the three “major” la­ bels: Universal, Sony Music and Warner Music Group.

Investors’ rush owes in part to a dearth of alternative tickets to this hot market.

Sony Music is locked inside a conglomer­ ate. Warner went public last June, since when its value has risen by half (including a bump of 12% on September 21st, amid the Universal frenzy), but its catalogue is half the size of Universal’s. The listing of Uni­ versal gives investors the chance at last to get their hands on what JPMorgan Chase, a bank, dubbed a “must­own asset”.

Now, after their chart­topping run, the majors face the equivalent of a diffi cult second album. Streaming is nearing satu­ ration­point in the rich world. Three in fi ve American homes subscribe to a service like Spotify, up from one in fi ve in 2016. diy audio tools are helping unsigned artists take a small but growing share of the busi­ ness. And regulators are asking whether labels are giving artists a fair share of streaming profi ts. On September 22nd Brit­ ain’s government ordered a competition probe into the music industry.

Keeping the hits coming will therefore rely on conquering emerging markets, where revenues are lower (Spotify costs the equivalent of $4 per month in South

Business etiquette

New civility SAN FRANCISCO

Wave goodbye to the handshake?

I

n the 1800s greeting an associate in the West meant doffi ng your hat. A hand may have been kissed. But seldom was it shaken—a gesture deemed too pally. The handshake has since become de rigueur even in Asia, which had resist­ ed it in favour of bows. Now Jose Maria Barrero, Nick Bloom and Steven Davis, three economists, fi nd that 19th­century mores are back. As part of a long­running survey of American business practices they fi nd the handshake is out, especially among women: 62% now prefer a verbal greeting, up from less than 30% before covid­19. Whatever the replacement—fi st bump, anyone?—Baroness de Fresne’s tip sounds pertinent. Proff ering your hand, she wrote in her etiquette manual from 1858, shows “poor upbringing and is liable to be considered an aff ront”.

A post-pandemic handbook United States, % responding* “In 2019, when you were introduced to somebody at work what did you do?”

Verbally Fist bump† greet

Shake hands

Men

23.8

61.1

Women 59.3

15.1

12.2 28.5

“When you return to work in person, and you are introduced to somebody which will you do?”

Shake hands Fist bump†

Men

27.8

Women 17.9

38.2 20.2

Source: wfhresearch.com

Verbally greet

34.0 61.9 *July-August 2021 †Or other

Africa, less than half what Americans pay), and on licensing music to new forms of media. This year Universal has signed deals with TikTok and Snap, allowing the apps’ users to sample clips from Univer­ sal’s back catalogue in their videos. Future deals with gaming, streaming and other entertainment platforms are likely. “Fort­ nite”, an online game, and Roblox, which lets users make their own games, have al­ ready become popular virtual­concert ven­ ues. Next year abba, a troupe of septua­ genarians on Universal’s books, will ap­ pear in a series of gigs in London as digital “abba­tars”. As the streaming boom slows, labels will need new ways of bringing in money, money, money. n Technology in Japan

Do me a solid TO KYO

Japanese firms want to win back their battery-making edge

W

hen yoshino akira, a Japanese chemist, worked on rechargeable batteries in the 1980s, it was with a view to powering portable devices. His Nobel­ prizewinning research led to the fi rst com­ mercial lithium­ion (Li­ion) battery. These now power everything from smartphones to electric vehicles (evs). But the Japanese fi rms that, building on Mr Yoshino’s work, dominated the Li­ion business early on have lost their edge. catl, China’s battery giant, and the energy arm of lg, a South Ko­ rean group, have eclipsed Japan’s Panason­ ic as the world’s largest suppliers of ev bat­ teries. Others are catching up in the pro­ duction of materials and components.

Japanese battery­makers want to regain their rightful place at the head of the pack.

To do so they are betting on solid­state bat­ teries. These still shuttle lithium ions be­ tween the anode and the cathode to charge and discharge, but the electrolyte where this shuttling happens is solid not liquid.

That makes the batteries more stable and potentially more powerful. It also dispens­ es with the need for bulky cooling systems, required for fast­charging Li­ion systems.

Cars equipped with solid­state batteries could be lighter, which increases range.

Japan submits more battery­tech pat­ ents a year than any other country; second­ ranked South Korea fi les half as many. Jap­ anese fi rms and inventors accounted for more than one in two solid­state­related patents between 2014 and 2018. More are coming. Japan’s government is pouring money into research, including a centre headed by Mr Yoshino. Industrial and chemicals fi rms, of which Japan has plen­

012

The Economist September 25th 2021

Business

Bartleby Stake claims A takeover in Britain shows shareholders still rule the corporate roost

F

or most people, coming into work is about more than picking up a pay slip.

Not everyone aims to change the fate of humankind at the offi ce. But even a sense that one’s employer is making a useful product helps escape the lure of the duvet in the morning. Bosses hype this up. It has become fashionable to claim that the pursuit of purpose in the service of “stakeholders” matters more than pleasing shareholders. The out­ come of a takeover battle shows how removed from reality the rhetoric is.

On September 20th Philip Morris International (pmi), a giant cigarette­ maker, announced it had convinced over three­quarters of the shareholders in Vectura, a British pharmaceutical busi­ ness, to back its takeover plan. Thus a maker of inhalers designed to combat respiratory diseases will soon be fully owned by a fi rm whose products often cause them. Whatever sense of purpose the research scientists toiling at Vectura may have had when it was independent is unlikely to survive intact becoming Marlboro’s sister company.

If stakeholderism had any teeth, this would have been the moment to bare them. Vectura is certainly among those beyond­mere­shareholder companies. It was spun out of academia in 1997. Its annual report talks of building a busi­ ness that delivers value to stakeholders, among them employees, suppliers and patients. Staying independent was prob­ ably a stretch given Vectura’s ho­hum performance in recent years. But the winning bid of £1bn ($1.4bn) valued each share at just 6% more than an off er by Carlyle, a private­equity group without pmi’s health baggage.

Self­interested legal analyses exist on both sides as to whether Vectura’s direc­ tors were compelled to recommend the

highest cash off er. Justifying its decision, the board spoke of its “fi duciary duties”. It appears to have interpreted these duties as weighing whether 165p a share off ered by pmi was indeed a larger fi gure than the 155p off ered by Carlyle (Bartleby has run the numbers and concludes that it was).

That did not stop the directors from in­ sisting that “wider stakeholders could benefi t” from a deal with pmi.

Where the battle lines were drawn is telling. Anti­tobacco campaigners led the charge against pmi. They did not pretend stakeholders beyond the shareholder register were in a position to block the deal, not even staff (who may receive bountiful bonuses). Instead, their main argument was to point out that a pmi­ owned Vectura’s long­term profi tability would suff er if its scientists were left unable to participate in industry confer­ ences, or if doctors balked at prescribing medicinal products tarred with big tobac­ co’s brush. The implication was that stake­ holders matter, but only in so far as keep­ ing them happy leads to bigger share­ holder profi ts down the line.

Ultimately, nobody disagreed that the outcome was for owners of the stock to decide. Even that might have derailed the creation of a pharma­tobacco group, given the presence on Vectura’s share register of many fund managers whose bosses trumpet their stakeholderist tendencies. Plenty make money peddling funds that specifi cally exclude tobacco, and rarely lose an opportunity to paint themselves as visionaries looking be­ yond just profi ts. But if a high­minded portfolio manager held out from handing over his Vectura shares to pmi on moral grounds, he has been hiding behind a thick pile of glossy reports about the importance of ethical investing.

Quite often, stakeholder satisfaction will align with shareholder success. A happy workforce, satisfi ed customers and so on tend to lead to good fi nancial outcomes. In this case, pmi will get from Vectura something that matters more than its target’s (modest) earnings. The purveyor of cigarettes has pushed hard into smoke­free products. This started with vaping, but is now extending to things that have nothing to do with nicotine. Buying Vectura, which will be run independently, is a signal that pmi is serious about that strategy. This seri­ ousness of intent matters more to in­ vestors than Vectura’s narrow prospects.

Helping pmi pivot from cigarettes could itself be painted as delivering such large societal benefi ts so as to off set the likely impact on Vectura’s current stake­ holders. Perhaps in future such argu­ ments will feature in takeover battles.

That would at least be consistent with the airy pronouncements of how busi­ ness has moved beyond shareholder value. For now, deciding which bid is better is still a case of comparing two fi gures and going with the bigger one.

ty, are gearing up to make the materials needed to bring the technology to market.

Murata, a big manufacturer which bought Sony’s battery division in 2017, plans to begin mass­producing smaller solid­state batteries this autumn. Nakaji­ ma Norio, Murata’s boss, sees “lots of po­ tential in wearables”, since the batteries do not burn or get hot (which is why they are already used in things like pacemakers).

This month Toyota announced plans to in­ vest $13.5bn by 2030 in next­generation car batteries, including the solid­state variety.

Honda and Nissan, two other carmakers,

are also eyeing the technology.

Naturally, if making solid­state batter­ ies were easy, manufacturers would be churning them out. It isn’t. Water mucks up the materials, so factories must be kept ultra­dry. Mitsui Kinzoku, an engineering fi rm, has been testing mass production of solid electrolytes and found that it is “in­ deed a very diffi cult process”, in the words of Takahashi Tsukasa, who is involved in the project. Toyota hopes to begin manu­ facturing in the mid­2020s, but even its technology chief, Maeda Masahiko, has cautioned that “we can’t be optimistic yet”.

Even if they can get the technology right, Japanese fi rms are not running un­ opposed, as they had been in Li­ion’s early days. Most big carmakers, including Ford, Hyundai and Volkswagen, have solid­state cars in the works. They may want to make the batteries themselves. Volkswagen has a big stake in QuantumScape, an American solid­state­battery startup backed by Bill Gates. Last month a group of British orga­ nisations, including Johnson Matthey, a big chemicals fi rm, and Oxford University formed a consortium to work on the tech­ nology. That’s some solid competition. n

57

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Business

The Economist September 25th 2021

Schumpeter The Midas of Mordor

Peter Thiel is reinventing America’s military-industrial complex

F

or a man who wants to live for ever, Peter Thiel has already done enough in his 53 years to leave mere mortals exhausted— and mostly frustrated. The venture capitalist, techno­Utopian and scourge of the liberal left is a myriad of contradictions.

He co­founded PayPal, a payments platform that, as a young libertarian, he hoped would undermine the world’s monetary sys­ tem. Instead it gave him the money to bestride Silicon Valley, a place he disdains. He was the earliest outside investor in Face­ book, a tech giant on whose board he remains, though he mocks social media. As a hedge­fund manager, he bet on an economic meltdown in America ahead of the fi nancial crisis of 2007­09, but called the bottom of the market too soon. He was one of the most prominent fi nanciers to throw his weight behind Donald Trump’s bid for the presidency in 2016. Yet his eff orts to populate the Trump administration with radical­thinking acolytes failed.

Max Chafkin, who trawls through this litany of inconsistencies in a new book, “The Contrarian”, writes fl uently. But he fails to fi nd an explanation that ties the threads together. At his most charita­ ble, he praises Mr Thiel as a creator of immense wealth because of the tech fi rms he has backed (besides PayPal and Facebook, they include sharing­economy giants such as Airbnb and Lyft, plus a host of other blitzscaling platforms). At his most damning, he por­ trays his subject as a tax­avoiding “nihilist” whose right­leaning ideology is mostly aimed at increasing his wealth and power.

And yet strangely Mr Chafkin, a business writer, only obliquely refers to the most intriguing business story. Between the lines, a picture emerges of an erratic visionary whose work, however cree­ py, isn’t done. Mr Thiel is applying the radicalism that inspired PayPal to cryptocurrencies and decentralised payment platforms.

The “Make America Great Again” schtick that drew him to Mr Trump has led to investments in military, surveillance and space technology that have helped double his net worth in the past year.

His yearning to reclaim Silicon Valley from software­loving peace­ niks and return to its roots in the cold­war military­industrial complex is bearing fruit—and spreading beyond California.

In short, his peculiar brand of libertarianism appears to have a new lease of life. With one hand, he wants to free individuals from government shackles by enabling them to create their own cur­

rencies. With the other, he is selling technology to a strong securi­ ty establishment so that it can protect them from potential ene­ mies. It is enough to make Silicon Valley’s mixture of hippies and yuppies hyperventilate on their yoga mats.

It is not the fi rst time a man described by Mr Chafkin as socially awkward has built a movement of like­minded people bent on shaking up the tech industry. The PayPal mafi a that he helped bring together at the turn of the century continues to fl ourish. Be­ sides him, its best­known member is Elon Musk, whose SpaceX rocket company is backed by Mr Thiel’s Founders Fund, a venture­ capital (vc) fi rm. Last valued at $74bn, on September 18th it re­ turned the fi rst­ever civilian crew from orbit. It is in the vanguard of America’s re­energised aerospace industry.

Others, too, have stuck by Mr Thiel for decades and share his security obsessions. Palantir, a data­analytics fi rm worth $52bn, is used by the American armed forces, immigration authorities and numerous police departments. It was co­founded by Mr Thiel in 2003 and is run by an old friend, Alexander Karp (who used to sit on the board of The Economist’s parent company). In the run­up to its initial public off ering last year, Mr Karp told potential investors the company, though born in Silicon Valley, shared few of its val­ ues. “Our software is used to target terrorists and keep soldiers sa­ fe…we have chosen sides,” he said.

Anduril, a startup defence contractor also backed by Mr Thiel, is building pilotless drones for military surveillance. Marc An­ dreessen of Andreessen Horowitz, a vc fi rm (who is also a Face­ book director), has written of the emergence of a new generation of Silicon Valley­style defence companies. “There are some in our industry who view serving such agencies and missions as contro­ versial. We do not,” he wrote in 2019, announcing a co­investment with Mr Thiel’s Founders Fund in Anduril. It was last valued at about $4.6bn.

Even without Mr Trump, Mr Thiel continues to mix business and politics. This year he joined forces with Narya, a vc fund led by J.D. Vance, the author of “Hillbilly Elegy”, to invest in Rumble, a video platform popular among right­wingers. He is backing Mr Vance in the Republican Senate primary in Ohio. Blake Masters, Mr Thiel’s co­author on “Zero to One”, a bestseller published in 2014, hopes to represent the Republicans in the Arizona Senate race. The New Yorker has speculated that “The Rise of the Thielists” could provide the Republican Party with a post­Trump ideology.

The cryptoking If that is the case, it would probably involve continued pillorying of big­tech fi rms, especially Google, which Mr Thiel has long ac­ cused of being a monopoly. The new ideology would be anti­Chi­ na, a country Mr Thiel portrays as using artifi cial intelligence (ai) to centralise control over the economy. “If ai is communist, crypto is libertarian,” he wrote last year. It would look favourably on cryptocurrencies and blockchains. He is a big backer of Block.one, a blockchain­software company whose crypto unit, Bullish, is planning to go public via a $9bn reverse merger with a special­ purpose acquisition company.

All this takes tech investing beyond Silicon Valley into new realms, some of them menacing to many observers. That will not worry Mr Thiel. Palantir is named after a “seeing stone” most often used by Sauron, ruler of J.R.R. Tolkien’s evil empire of Mordor in “The Lord of the Rings”. Evidently Mr Thiel, ever the contrarian, does not view Mordor as harshly as most Tolkien fans do. As he once told a friend: “I’d rather be seen as evil than incompetent.” n

012

Finance & economics

The Economist September 25th 2021

→ Also in this section 60 The gas crisis 61 China’s trade gambit 62 Buttonwood: Just add crypto 63 The rental-property boom

64 Corporate borrowing 66 Free exchange: Debt ceilings

China’s property woes

The folly of Evergrande

HO NG KONG

What are the systemic risks from China’s debt-strapped housing firms?

C

hina’s financial authorities are hon­ ing a new skill: the “marketised de­ fault”—or an orderly market exit and well­ managed restructuring for troubled com­ panies. The term has surfaced in govern­ ment documents as regulators manage larger, more frequent and highly complex defaults. They have had some successes.

Evergrande, a massive Chinese property developer on the brink of collapse, is prov­ ing to be anything but.

The company, the world’s most indebt­ ed property fi rm with $300bn in liabilities, said on September 22nd that it had come to an agreement with bondholders on a cou­ pon payment on an onshore bond due this week, easing some fears of an imminent collapse. Analysts had been expecting the company to default on both yuan­ and dol­ lar­denominated interest payments. The fate of the dollar­bond payments, due as The Economist went to press, was unclear.

On September 23rd The People’s Bank of China, the central bank, injected more short­term liquidity into the fi nancial markets than it has since late­January, in a

sign it was attempting to soothe market concerns about an Evergrande default.

Far from being a well­managed process, Evergrande’s distress has been roiling mar­ kets around the world. Major indices in Eu­ rope and America fell on September 20th as Evergrande’s situation appeared to worsen. Yields on the dollar bonds of some Chinese borrowers outside the property sector have risen.

Hong Kong­traded shares in one large Shanghai­based group, Sinic Holdings, collapsed by nearly 90% on September 20th on fears that it would fail to repay a bond due in October. r&f Properties, an­ other highly indebted group, has said it will raise up to $2.5bn by borrowing cash from company executives and selling a property project. Several fi nancial institu­ tions with high exposure to the property sector have suff ered steep declines in their market value. The price of iron ore fell be­ low $100 per tonne on September 20th for the fi rst time in a year amid speculation that Chinese homebuilders will construct fewer properties.

The crackdown on developer debt is not an isolated event, but one of several cam­ paigns Xi Jinping, China’s president, is us­ ing to remould the country, including a clampdown on internet companies. As part of Mr Xi’s slogan of “common prosper­ ity”, the measures include making housing more aff ordable and ridding the property market of speculation. “A regime shift is occurring without necessarily the markets fully comprehending the enormous un­ derlying change to the structure of the economy,” said Sean Darby of Jeff eries, an investment bank.

Analysts and short­sellers have been predicting the death of Evergrande for years. Its chairman, Xu Jiayin, who found­ ed the company in 1996, put up $1bn of his own cash in 2018 to meet a shortfall in de­ mand for an Evergrande bond with a 13% coupon. The company has relied on ever­ increasing short­term debts, often at high­ er and higher cost, to fund a business mod­ el that depends on borrowing money to de­ velop properties and selling them years be­ fore they are completed to generate cash from buyers’ deposits.

When central­government regulators stepped up their campaign against lever­ age last August, the fi rst major cracks be­ gan appearing in its business. Authorities have constricted developers’ capacity to continue accumulating debt, limiting li­ ability­to­asset ratios to less than 70%, net debt­to­equity ratios to less than 100% and mandating levels of cash that are at least

59

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60

Finance & economics

The Economist September 25th 2021

Home bias Chinese banks’ loans to property developers % of total loans, H1 2021 0

2

4

6

8

10 12

Ping An Bank Minsheng Bank China Industrial Bank Shanghai Pudong Development Bank China Merchants Bank China CITIC Bank Source: Jefferies

Average* *Average exposure for a selection of Chinese banks

equivalent to short­term debt. The policy has changed the nature of the business.

Unable to continue perpetually expanding their debts, Evergrande and several other weak companies have slashed home prices and halted projects in order to preserve cash. Evergrande is said to be offl oading housing projects in an attempt to generate just enough cash to make payments to sup­ pliers. It is also selling off its land at a 70% discount, says one investor. ubs, a Swiss bank, has identifi ed ten other Chinese property groups with 1.86trn yuan ($290bn) in contracted sales that are in similar risky positions.

How far will the turmoil spread? The vo­ latility leading up to the expected default on September 23rd has already given inves­ tors a taste of the risks emanating from China’s deleveraging campaign. However, many analysts still believe severe conta­ gion can be ring­fenced to groups with known connections to Evergrande and other weak property developers.

Start with banks, the main area of regu­ latory concern. China’s banks have lent heavily to developers. A recent central­ bank stress test on banks’ exposure to the property sector concluded that an extreme scenario, in which loans to developers suf­ fered a 15­percentage­point rise in their non­performing ratios, would eat up 2.1 percentage points of banks’ overall capital­ adequacy ratios, reducing the industry av­ erage to 12.3%. Such a drop in the banks’ capital buff ers, evenly spread across the banking sector, would be a tolerable deple­ tion of protection. But such a crisis would not hit banks evenly; weaker banks would see a much larger reduction, according to analysts at s&p Global, a ratings agency.

Ping An Bank and Minsheng Bank, both hit by sell­off s in recent days, had big shares of their total loan books extended to property groups in the fi rst half of the year (see chart). Minsheng has tight links to Evergrande. Shengjing Bank, which is ma­ jority­owned by Evergrande, is thought to have lent heavily to the property company.

A banking crisis is not the base case for ma­

ny investors watching the situation. But “the situation would change very quickly” if a bank of Minsheng’s scale proved vul­ nerable, says a China­based executive at an asset manager. Central authorities would probably step in swiftly at the fi rst sign of distress at a major bank, the investor adds.

Of more immediate concern are Ever­ grande’s links to China’s shadow­banking system. About 45% of its interest­bearing liabilities in the fi rst half of 2020 were from trusts and other shadow lenders, which are opaque and typically charge higher rates, compared with just 25% for bank loans, according to Gavekal, a re­ search fi rm.

Panic in the off shore bond market is an­ other worry. Chinese developers are the largest issuers of dollar­denominated bonds traded in Hong Kong, and among them Evergrande is the single largest issu­ er. The company’s bonds have traded at less than 30 cents to the dollar over the past week. Many other developers’ yields have shot up above 30%. Investors are waiting for a signal from Beijing. So far the absence of any strong sign of support has shown that regulators do not want to step in as they did recently with Huarong, a state­ owned investor in distressed debt that re­ quired a full bail­out in August. The treat­ ment of Huarong, which is intricately con­ nected to China’s fi nancial system, sug­ gests that Mr Xi is still intent on avoiding a generalised market meltdown.

If Evergrande does default, there is still the possibility that the government may step in to help individuals. The state, which is likely to be worried by protests in recent days by savers who have bought Evergrande’s wealth­management pro­ ducts, is expected to be forced to broker a partial bail­out for assets most connected with social stability. Such a process would be focused on the properties the company has already sold to ordinary people and which are not yet built. Capital Economics, a research fi rm, estimates there are about 1.4m of those. This could involve a number of companies carving up construction pro­ jects across the country and taking over as­ sets in the provinces where they are based.

By keeping these projects under develop­ ment, suppliers and contractors would al­ so in eff ect be bailed out.

One diffi culty in organising such a bail­ out will be fi nding buyers. The crackdown on leverage has left few developers with ex­ cess cash to make such purchases. That means local governments may need to step in to help out.

Perhaps the biggest contagion risk fl ar­ ing up in the market is not that posed by Evergrande itself but by Mr Xi’s unyielding crackdown on leverage. Logan Wright of Rhodium Group, a research fi rm, sees Evergrande not as the root cause of the troubles in China’s property sector. Instead

it is a symptom of the government’s eff orts to reshape the market. Mr Wright says the assault on China’s vibrant tech sector sug­ gests Mr Xi will see the deleveraging cam­ paign through.

These implications are bigger than the current market rout. China’s property sec­ tor accounts for 20­25% of its economy. An extended campaign against developer debt could signifi cantly lower China’s growth prospects, says Tommy Wu of Oxford Eco­ nomics, a research fi rm. Such a strategy could lead to much greater economic and fi nancial turmoil farther down the road. It would also raise further questions about where Mr Xi’s relentless and wide­reach­ ing campaigns are leading China. n Natural gas

Boiling over What is causing the frenzy in global gas markets?

A

cross the world, a natural­gas short­ age is starting to bite. Prices are surg­ ing (see chart), pushing up the cost of pow­ er. In many countries, including Britain and Spain, governments are rushing through emergency measures to protect consumers. Factories are being temporar­ ily switched off , from aluminium smelters in Mexico to fertiliser plants in Britain.

Markets are frantic. One trader says it is like the global fi nancial crisis for commod­ ities. Even in America, the world’s biggest natural­gas producer, lobby groups are calling on the government to limit exports of liquefi ed natural gas (lng), the price of which has climbed to $25 per million Brit­ ish thermal units (mbtu), up by two­thirds in the past month.

In one sense the crisis has fi endishly complex causes, with a mosaic of factors from geopolitics to precautionary hoard­ Power surge Natural-gas prices*, $ per million Btu† 30 East Asia

25 Europe

20 15

Britain

10 United States

5 0

S O

N

2020 Source: ICIS

D

J

F

M

A

M

J

J

A

S

2021 *Future contract for the nearest month †British thermal unit

012

The Economist September 25th 2021

Finance & economics

Plant-based fuel Global new installed LNG liquefaction capacity Tonnes, m Forecast

50 40 30 20 10 0

1999

2005

10

15

20

25

Source: AllianceBernstein

ing in Asia sending prices higher. Viewed from a diff erent perspective, however, its causes are simple: an energy market with only thin safety buff ers has become acute­ ly sensitive to disruptions. And subdued investment in fossil fuels may mean high­ er volatility is here to stay.

The shortfall has taken almost everyone by surprise. In 2019 there was plenty of gas on the international market, thanks to new lng plants coming online (see chart).

When the pandemic struck and lockdown constrained demand, much of the excess gas went into storage in Europe. That came in handy last winter, which was very cold in northern Asia and Europe. The freeze pushed up demand for heating. In Asia gas prices quadrupled in three months.

This year odd weather has featured again. A hot summer has added to boom­ ing gas demand in Asia. The region ac­ counts for almost three­quarters of global lng imports, according to AllianceBern­ stein, a fi nancial fi rm. China led the way, thanks to its swift economic recovery. In the fi rst half of 2021 its power generation jumped by 16% compared with the previ­ ous year. Three­fi fths of China’s power is generated by coal; a fi fth comes from hy­ dropower. But hydropower generation has been low because of a drought. And coal demand fell, partly because of environ­ mentally friendly policies, such as replac­ ing coal­burning boilers with gas ones. In­ vestment in mining coal has also been low.

That meant more reliance on natural gas.

Other countries have seen higher de­ mand too, partly because of the warm sum­ mer in Asia. Meanwhile, a drought in Latin America, which gets half of its power from hydro, has increased the need for gas there.

The region’s lng demand has almost dou­ bled in the past year.

Booming demand has been met with lower supply of lng. Small disruptions, some caused by maintenance, others un­ planned, have nibbled away at global out­ put. The combined eff ect has been to cut global lng supply by roughly 5%, esti­ mates Mike Fulwood of the Oxford Insti­

tute for Energy Studies (Mr Fulwood’s daughter works at The Economist).

With lng being sucked into Asia, less has been left for European buyers. lng im­ ports into Europe are about 20% lower than they were last year. Gas production has also dropped in Britain and the Nether­ lands. Analysts had expected Russia’s Gaz­ prom, which supplies a third of Europe’s gas, to make up the diff erence. But even though it met all its long­term gas con­ tracts to Europe this year, it has not sold ad­ ditional gas in the spot market. Some sus­ pect Gazprom wants to speed up the launch of Nord Stream 2, a big gas pipeline.

Weather has worked against Europe in other ways. Across the north­west of the continent the air has been still, reducing wind generation. Moreover, usually Euro­ pean utilities respond to high gas prices by using more coal. But the price of coal is al­ so at near­record highs because of demand for electricity and output bottlenecks.

America’s gas market has responded to international demand. In the fi rst half of the year America exported about a tenth of its natural­gas production, a 42% increase on the year before, according to the Energy Information Administration, a govern­ ment statistical agency. But lng facilities in America are running nearly at full ca­ pacity. So are liquefaction facilities in oth­ er big gas­producing countries, such as Australia and Qatar.

What could take the heat out of the mar­ ket? One possibility is substitution. Europe is burning more coal than this time last year. Some power plants in Pakistan and Bangladesh have switched to oil from lng.

Another possibility is an increase in sup­ ply from Russia. A fi nal possibility is warmer weather. But meteorologists are al­ ready forecasting a cold winter. Gas prices are unlikely to come down to earth soon. n Transpacific trade

Wiping America’s eye HO NG KONG

China throws a wrench into a big regional trade pact

C

hina’s request to join the Compre­ hensive and Progressive Agreement for Trans­Pacifi c Partnership (cptpp) landed on the desk of Damien O’Connor, trade minister of New Zealand, on September 16th. The location was a fi tting nod to the deal’s history. In 1999 a meeting between the trade ministers of two small export po­ werhouses, New Zealand and Singapore, kicked off what became one of the world’s largest free­trade areas.

When that alliance was fi rst mooted,

A lot of heavy lifting to do

China was a nascent trading nation and its economic heft was piddling. Its share of global merchandise exports was 3.4%. Last year, that fi gure ran to 14.7%, making China the only country in the world which ac­ counts for a double­digit share.

America, which signed up to join a fore­ runner of the cptpp, before pulling out in 2017, often sought to portray the bloc as a tool to keep China from exercising infl u­ ence over trading rules. It is still diffi cult to imagine China’s application being suc­ cessful in the short term. The cptpp is a de­ tailed agreement requiring deep economic integration, and new members must be ad­ mitted by unanimous approval. “China is surprisingly close to meeting cptpp condi­ tions in many areas. But where there are gaps, they’re huge,” according to Jeff Schott of the Peterson Institute for International Economics (piie), a think­tank in Wash­ ington, dc. He reckons the country has made huge strides in recent years on intel­ lectual­property and investment rights.

But the dominance of state­owned enter­ prises (soes), weak labour rights and con­ cerns about data privacy leave a lot of ground to catch up.

The treatment of soes is a perpetual bugbear of many of China’s trading part­ ners. To gain membership of the cptpp, Vietnam in particular had to agree to re­ strictions on support for its own state­run fi rms and increased transparency on their operations and structure, which China would be expected to mirror. Data gover­ nance is a case where China is, if anything, moving in the opposite direction to the one which would be needed for member­ ship. The cptpp countries have committed themselves to promoting the cross­border transfer of information. In contrast, China has become the global exemplar of data lo­ calisation: a data­protection law passed

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last month will make it harder for foreign companies to move data out of the country.

Moreover, China is not the only country with a pending application. The Taiwanese government lodged an application to join the bloc less than a week later. Its dip­ lomatic status vis­à­vis China makes its membership of any trade deal fraught, but on strictly economic grounds, it would have fewer hurdles to clear.

Despite the diffi culties, some member countries might look eagerly on the poten­ tial economic gains of having China on board. Once it was thought that America

The Economist September 25th 2021

would be the economic powerhouse in the bloc. Today, among cptpp members, only Canada and Mexico trade more with Amer­ ica than with China. A piie paper pub­ lished in 2019 estimated global income gains from the cptpp as it stands run to $147bn a year. If China were included, that would rise to $632bn. The benefi ts to many of the members would run to more than 1% of their national income.

China is already the largest member of the Regional Comprehensive Economic Partnership, a larger but shallower trade deal agreed last year. It contains fewer con­

ditions for membership, but unlike the cptpp includes every big South­East Asian economy, as well as South Korea. Member­ ship of both, if it were to happen, would make China a formidable leader of com­ mercial diplomacy in Asia.

Most bets are that its bid to join the cptpp will fail. And yet not long ago few would have wagered that China would show more interest in membership than America. If the application means little else, it remains a stark illustration of just how quickly America’s commercial infl u­ ence in Asia has waned. n

Buttonwood Just add crypto Why it is wise to hold bitcoin in an investment portfolio

“D

iversification is both observed and sensible; a rule of behaviour which does not imply the superiority of diversifi cation must be rejected both as a hypothesis and as a maxim,” wrote Harry Markowitz, a prodigiously talented young economist, in the Journal of Finance in 1952. The paper, which helped him win the Nobel prize in 1990, laid the foundations for “modern portfolio theo­ ry”, a mathematical framework for choosing an optimal spread of assets.

The theory posits that a rational in­ vestor should maximise his or her re­ turns relative to the risk (the volatility in returns) they are taking. It follows, natu­ rally, that assets with high and depen­ dable returns should feature heavily in a sensible portfolio. But Mr Markowitz’s genius was in showing that diversifi ca­ tion can reduce volatility without sacri­ fi cing returns. Diversifi cation is the fi nancial version of the idiom “the whole is greater than the sum of its parts.”

An investor seeking high returns without volatility might not gravitate towards cryptocurrencies, like bitcoin, given that they often plunge and soar in value. (Indeed, while Buttonwood was penning this column, that is exactly what bitcoin did, falling 15% then bounc­ ing back.) But the insight Mr Markowitz revealed was that it was not necessarily an asset’s own riskiness that is important to an investor, so much as the contribu­ tion it makes to the volatility of the over­ all portfolio—and that is primarily a question of the correlation between all of the assets within it. An investor holding two assets that are weakly correlated or uncorrelated can rest easier knowing that if one plunges in value the other might hold its ground.

Consider the mix of assets a sensible investor might hold: geographically

diverse stock indexes; bonds; a listed real­estate fund; and perhaps a precious metal, like gold. The assets that yield the juiciest returns—stocks and real estate— also tend to move in the same direction at the same time. The correlation between stocks and bonds is weak (around 0.2­0.3 over the past ten years), yielding the po­ tential to diversify, but bonds have also tended to lag behind when it comes to returns. Investors can reduce volatility by adding bonds but they tend to lead to lower returns as well.

This is where bitcoin has an edge. The cryptocurrency might be highly volatile, but during its short life it also has had high average returns. Importantly, it also tends to move independently of other assets: since 2018 the correlation between bitcoin and stocks of all geographies has been between 0.2­0.3. Over longer time horizons it is even weaker. Its correlation with real estate and bonds is similarly weak. This makes it an excellent potential source of diversifi cation.

This might explain its appeal to some big investors. Paul Tudor Jones, a hedge­

fund manager, has said he aims to hold about 5% of his portfolio in bitcoin. This allocation looks sensible as part of a highly diversifi ed portfolio. Across the four time periods during the past decade that Buttonwood randomly selected to test, an optimal portfolio contained a bitcoin allocation of 1­5%. This is not just because cryptocurrencies rocketed: even if one cherry­picks a particularly volatile couple of years for bitcoin, say January 2018 to December 2019 (when it fell steep­ ly), a portfolio with a 1% allocation to bitcoin still displayed better risk­reward characteristics than one without it.

Of course, not all calculations about which assets to choose are straight­ forward. Many investors seek not only to do well with their investments, but also to do good: bitcoin is not environmental­ ly friendly. Moreover, to select a port­ folio, an investor needs to amass rele­ vant information about how the securi­ ties might behave. Expected returns and future volatility are usually gauged by observing how an asset has performed in the past. But this method has some obvi­ ous fl aws. Past performance does not always indicate future returns. And the history of cryptocurrencies is short.

Though Mr Markowitz laid out how investors should optimise asset choices, he wrote that “we have not considered the fi rst stage: the formation of the rele­ vant beliefs.” The return from investing in equities is a share of fi rms’ profi ts; from bonds the risk­free rate plus credit risk. It is not clear what drives bitcoin’s returns other than speculation. It would be reasonable to believe it might yield no returns in future. And many investors hold fi erce philosophical beliefs about bitcoin—that it is either salvation or damnation. Neither side is likely to hold 1% of their assets in it.

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The Economist September 25th 2021

Finance & economics

Investing in property

The new rent-seekers

A tide of Wall Street money is raising the prospects of a renters’ revolt

B

erliners, more than four­fi fths of whom rent their homes, have an un­ usual opportunity on September 26th to vent their anger over the rising cost of housing. A referendum, on the same day as Germany’s national and municipal elec­ tions, will give them a say on whether or not the city should in eff ect “expropriate” some of Germany’s largest residential­ property fi rms, aff ecting up to 240,000 homes. The vote is non­binding. But its impact on the housing market is already having an eff ect. On September 17th two giant property investment trusts, Vonovia and a fi rm it is targeting in a €19.1bn ($22.5 billion) takeover, Deutsche Wohnen, said they would sell almost 15,000 fl ats to the city for €2.5bn. They portrayed it as a friendly gesture. But it was also a thinly veiled attempt to stop being stripped of the keys to their own homes.

Whatever the outcome of the referen­ dum, it serves as a warning for institution­ al investors piling into residential proper­ ty in Europe and America. Real­estate in­ vestment trusts (reits), private­equity fi rms, insurance companies and pension funds see the single­family rental housing market as a relatively high­yielding hedge against infl ation that has been spared the impact of pandemic­related lockdowns on offi ces and shops. But housing aff ordabili­ ty has high political sensitivity. In Berlin, rents have roughly doubled in a decade.

Across Europe their rise has outpaced wage

increases. In America, where a quarter of renters pay more than half of their income to landlords, rents in June were up 7.5% compared with last year, when they rose by 1.4%. The highest increases were in Phoe­ nix and Las Vegas, up by 16.5% and 12.9%, respectively over the same time period.

Nationally it is hard to lay the blame for the rent rises on institutional investors. But in some cities where they concentrate their portfolios, faceless megacorps are increas­ ingly being seen as part of the problem.

The biggest names are well known.

BlackRock and JPMorgan Chase’s asset­ management business feature among the stampede of buyers. kkr, a private­equity fi rm, is building out a new single­family landlord entity in America. The sums in­ volved are rising fast. An estimated $87bn of institutional money went into Ameri­ ca’s rental­home market during the fi rst half of this year, according to Redfi n, a resi­ dential brokerage. Around 16% of single­ family homes for sale were bought by in­ vestors in the second quarter, up from more than 9% a year earlier. A similar shift is under way in Europe where fi rms such as Goldman Sachs, Aviva and Legal & General are wading into the market. Lloyds Bank­ ing Group, Britain’s largest mortgage lend­ er, is also moving into housing with a tar­ get to purchase 50,000 homes within the next decade. That could make it the coun­ try’s largest landlord.

It is not the fi rst time the investment

market has been hot. Blackstone, a fi nan­ cial conglomerate, was one of the fi rst big investors to purchase foreclosed homes, many of them vacant or in disrepair, after the 2007­09 global fi nancial crisis. The fi rm showed up at foreclosure auctions in America’s courthouses and drove street by street, comparing neighbourhoods and school districts. In 2012, it paid $100,000 for its fi rst purchase in Phoenix. Soon it was spending $125m on homes each week.

That same year Blackstone created Invita­ tion Homes, now the largest owner of sin­ gle­family rental houses in America, be­ fore taking it public in 2017 and selling off its shares two years later. Today Invitation Homes owns 80,000 homes out of a total market of 16.2m single­family rental homes. Altogether the bet on housing earned Blackstone nearly $7bn in divi­ dends paid before and since Invitation Homes listed its shares, or more than twice its initial investment. The fi rm, which has returned to the market, recently made a $6bn acquisition of Home Partners of America, which owns more than 17,000 single­family homes. It gives its tenants the option to buy.

The main impetus for the renewed in­ vestor enthusiasm is diff erent from a de­ cade ago. It is partly because of demogra­ phy. Following the fi nancial crisis, many millennials favoured metropolitan fl ats as they established their careers. As more of them enter middle age—the 35­ to 44­year­ old age cohort in America is expected to grow at double the pace of the average over the next fi ve years—they want more space.

It is also because of the pandemic. If re­ mote working remains attractive, it will in­ crease demand for homes that are farther from city centres. That helps explain why institutional buyers have piled into sec­ ondary cities such as Phoenix, Raleigh, Greensboro and Dayton.

Many of this cohort would prefer to buy than to rent, but high house prices are an impediment. In America, the median home cost around 4.3 times the median household income in 2019, up from 3.9 times in 2002. In Britain the average home currently costs more than eight times aver­ age earnings—a level that has only been breached twice in the past 120 years. Even if rents are rising, too, leasing a suburban home with an offi ce and room to raise chil­ dren can be an interim option.

Some people blame large investors for both skyrocketing house prices and rising rents. At an aggregate level that’s a hard case to make. Professional investors own just 2% of the total rental­housing stock in America. In Europe, less than 5% of resi­ dential real estate is in the hands of large, publicly traded funds. But in those cities where institutional investors are increas­ ingly active, they may have more of an im­ pact. They also frequently pay with cash,

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The Economist September 25th 2021

House party United States, single-family rental-market revenue* % change on a year earlier per available square foot 6 3 0 -3 Property-industry average, incl. industrial and commercial 2005

10

Source: Green Street

15

20

-6 -9 Forecast

-12

25

*Combined changes in rents and occupancies in top 25 markets

giving them an edge over buyers with a mortgage in a competitive market. One in six home sales in America went to an in­ vestor between April and June, according to Redfi n. In cities such as Atlanta, Miami and Phoenix, the fi gure was one in four.

That may explain some of the political scrutiny. “Institutional investors are walk­ ing on a tightrope,” says Cedrik Lachance of Green Street, a property­analysis fi rm. On the one hand, rising rents make invest­ ments more attractive. On the other hand, they invite tougher policy responses. The White House is placing limits on the sale of lower cost homes to large investors. In Ire­ land, property taxes were raised to stop in­ stitutional investors from snapping up family homes that would normally be mar­ keted to fi rst­time buyers.

Such regulatory responses may be crowd pleasers. They will not solve the rental problem. One study showed that rent­control policies in Catalonia, a region of Spain, not only failed to make the mar­ ket more aff ordable, but actually worked against it. The number of homes available fell by 12% while prices remained un­ changed. Similarly, researchers studying the impact of a fi ve­year rent freeze in Ber­ lin found that the number of rental proper­ ties slumped last year. Catalonia’s law has been challenged by a constitutional court.

Berlin’s has been struck down.

Instead, more homebuilding is the an­ swer. Some landlords argue that they in­ crease the housing stock by off ering devel­ opers the certainty of bulk purchases. Len­ nar, America’s largest home builder by rev­ enue, recently signed a $4bn deal with investors that includes building over 3,000 homes. Additionally, reits in America such as Invitation Homes and American Homes 4 Rent are either building more homes or striking partnerships with ho­ mebuilders to boost their supply. In Brit­ ain, where one in fi ve newly built homes could be institutionally­owned by the end of the decade, Lloyds has announced a fund to boost house building in return for a share of the profi t. Professional landlords

that own multiple properties also claim that they’re able to off er better services, more maintenance and longer leases than individual landlords who could sell up at any moment.

But in the wake of the pandemic, home­ building globally is anaemic. Shortages of labour and material have stalled growth.

Fewer homes coming onto the market meant that single­family institutional in­ vestors in America increased their portfo­ lios by 1.5% in 2020, down from 9.2% in 2018, according to Amherst Capital, a prop­ erty fi rm. Less homebuilding increases the chance that rents will continue to rise. An­ nual returns in America and Europe are ex­ pected to be as high as 15.1% and 17.5% re­ spectively over the next few years. The as­ set class will therefore remain enticing from an income standpoint, but more ris­ ky from a regulatory one. Even if a majority of Berlin’s renters vote against the land­ lords, it’s hard to imagine meaningful law changes to curb property rights. But for the greediest investors, the writing is on the wall, four windows and a door. n Rich-world corporate debt

A mountain but not a volcano High levels of borrowing by firms will not derail the recovery

O

n september 20th the Bank for Inter­ national Settlements (bis), the central banks’ central bank, released data showing that corporate borrowing around the world remains at an all­time high. A notable case is in China, where there is even more busi­ ness borrowing as a share of gdp than in Ja­ pan at the peak of its bubble­related bor­ rowing spree in the 1990s. But it is high everywhere (see chart). Corporate debt in the rich world stood at 102% of gdp at the end of March, compared with 92% before the outbreak of the covid­19 pandemic.

Could high levels of debt threaten the re­ covery in advanced economies?

Many regulators were sounding the alarm about elevated company debt even before the covid­19 pandemic. Since then, the hit to fi rms’ incomes has led to a wave of rating downgrades: between March 2020 and March 2021, Fitch, a ratings agen­ cy, downgraded 460 fi rms, or almost 20% of its corporate portfolio. While defaults have eased this year as economies have re­ covered, many fi rms will be burdened by higher levels of debt for years to come.

Even if interest rates remain low, this “debt overhang” could aff ect their willingness to invest or to hire new staff .

Intriguingly, however, hangovers from

corporate­debt booms rarely cause signifi ­ cant economic damage, even if creditors themselves suff er when fi rms default. A re­ cent paper by Moritz Schularick, of the University of Bonn, and several coauthors, examines data on business cycles for 17 ad­ vanced countries over more than a century, and compares corporate­debt busts with those associated with household borrow­ ing (like the 2008­09 fi nancial crisis).

The authors argue that lenders often have an incentive to restructure old cor­ porate loans, reducing the risk of “zombie” companies persisting, and freeing up fi ­ nance to support the next recovery. For household debt, however, restructuring thousands of individual loans is often im­ possible, and lenders may be more in­ clined to keep the loans on their books in the hope that house prices eventually re­ cover. The risks to the economy are higher after commercial­property busts than for corporate debt where lenders mainly have their eyes on fi rms’ cashfl ows. This is one reason why the property­related debt woes in China are potentially disturbing.

In much of the rich world, there are rea­ sons to be cautiously optimistic. The larg­ est lenders are in much better health than in 2008. All of the major regulatory au­ thorities carried out stress tests during 2020, using macroeconomic scenarios much more severe than have actually tran­ spired, but their banking systems were able to absorb large corporate losses and carry on lending. And the parts of the econ­ omy that have had the toughest time dur­ ing the pandemic only account for a rela­ tively small share of corporate debt. For ex­ ample, modelling by Benoît Mojon, Daniel Rees and Christian Schmieder of the bis projects that defaults will increase in the hospitality industry over the coming years, but they note that the sector only accounts for between 1.5% and 8% of corporate cred­ it in the nine major economies they model.

There will be a mountain of corporate debt in many countries for some time. But that does not mean the recovery will neces­ sarily falter. n Unbalanced-sheets Company debt as % of GDP 175 China

Japan

150 125 100

Advanced economies*

United States

75 Britain 50

Emerging economies*

25 0

1991 95 Source: BIS

2000

05

10

15

21†

*Individual country debt ratios combined using PPP weights †Q1

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The Economist September 25th 2021

Free exchange Rules of engagement

America’s debt ceiling is a disaster, but fiscal rules, designed well, can help

I

t is once again time for that most bizarre of economic specta­ cles, a debt­ceiling showdown in America. In the name of fi scal responsibility, the world’s biggest economy is fl irting with an act of brazen irresponsibility: a sovereign default. The government has just about exhausted its current statutory debt limit of $28.5trn, after which it will struggle to honour its obligations. Ja­ net Yellen, the treasury secretary, has warned that the government will probably run out of cash sometime next month.

Most economists and executives assume that America will come to its senses before then. After all, Congress simply has to raise or suspend the debt limit, which it has done nearly 80 times since 1960, even if occasionally leaving it to the last minute.

Should that occur again—and it almost certainly will—the debt ceiling will fade from view until the next clash, serving mainly as evidence of America’s polarised politics (as if any were needed).

America’s ritualistic threats of economic self­harm are unique.

But the debt ceiling is an extreme version of something that many other countries do: they limit government borrowing through fi s­ cal rules. Germany applies a “debt brake”, capping its structural defi cit at 0.35% of gdp (though it has ignored that cap since the outbreak of the covid­19 pandemic). In Britain the Conservative government aims to match its spending and revenues over a three­year horizon. Rishi Sunak, the chancellor, is expected to un­ veil even tighter rules in next month’s budget, including a com­ mitment to lower the debt­to­gdp ratio.

The purpose of fi scal rules is to deal with what economists call a “common pool” problem—namely, that benefi ciaries of govern­ ment spending ignore the costs imposed on taxpayers and future generations. The fear is that without a strict cap on spending, elected offi cials will burn through cash. Taken to an extreme, bond and currency markets might punish profl igacy. Better not to test them. Hence the need, supposedly, for clear boundaries.

Yet the past decade has shown that the boundaries are quite a bit wider and fuzzier than previously thought. In America federal debt was about one­third of gdp in 2000; today it is just about 100%. Far from precipitating a fi nancial meltdown, the rising debt burden has become more, not less, manageable thanks to ultra­ low interest rates. In nominal terms the cost of servicing all the

debt (the annual interest payments on it) is just over 1% of gdp, nearly half what it was two decades ago. Similar trends have played out throughout the rich world. There may be no such thing as a free lunch, but governments have learned that they can get much larger portions for half the price.

One response is to soften the limits. Take the European Union’s rule that member states must cap their debt at 60% of gdp—which is largely observed in the breach, with average eu debt levels now hurtling past 90% of gdp. Economists such as Zsolt Darvas of Bruegel, a think­tank, suggest that this limit should be treated as a long­term anchor rather than any kind of near­term target.

Such a softening would help. But it would fail to deal with a more basic fl aw with debt limits, which is that they are intrinsical­ ly arbitrary. There is little empirical basis for keeping debts to 60% of gdp, much less to exactly $28.5trn in America. The very arbi­ trariness of these red lines risks creating a boy­who­cried­debt syndrome. As borrowing levels blow past them and yet the econ­ omy continues to perform well, some politicians may conclude that any and all calls for fi scal restraint are best ignored.

A more sophisticated response is to focus fi scal rules on what really matters about debt: the cost of servicing it. In a paper in 2020 Larry Summers and Jason Furman suggested that govern­ ments should aim to stop their real interest payments from rising above 2% of gdp. If they succeed, debt­to­gdp targets would be rendered all but superfl uous. More generally, economists recog­ nise that so long as a country’s pace of growth is higher than its in­ terest rates, its path to fi scal sustainability ought to be easier, be­ cause its burden of existing debts will steadily shrink.

However, these more elegant fi scal rules have their own pro­ blems. Why cap debt­servicing costs at 2% of gdp and not, say 3%.

Moreover, the confi dence that economic growth can surpass in­ terest rates stems from the belief that rates will remain subdued well into the future as the population ages. But America's ongoing bout of infl ation has shown just how uncertain that is. Should central banks need to jack up interest rates to quell price pres­ sures, debts would quickly spiral higher.

You only give me your funny paper Doing away with indefensible lines in the sand altogether is a good alternative. In a paper this year Peter Orszag, Robert Rubin and Joseph Stiglitz argue for a new fi scal architecture. An impor­ tant part would be to index long­term spending to underlying drivers. For example, social­security benefi ts could automatically be made less generous to take into account increasing life expec­ tancy. This can be thought of as a fi scal rule that would commit governments to sensible budgetary decisions, rather than specify­ ing debt targets with spurious precision.

In another paper this year Olivier Blanchard and others pro­ posed general fi scal standards for the eu, such as requiring gov­ ernments to ensure that their debts are sustainable, but leaving it to them to choose their policy mixes. Independent fi scal councils could then use detailed debt­sustainability criteria to assess their budgets. If done methodically, this would be more scientifi c than the fi scal rules now seen in America and Europe.

Alas, all these clever ideas may amount to nothing in America.

There is little chance that the government will abandon its debt ceiling, for in one dimension it is most eff ective. Republicans have become dab hands at wielding it as a cudgel to stall the agen­ das of Democrat presidents and to portray them as spendthrifts.

No other fi scal rules can deliver that kind of return. n

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Science & technology

The future of warfare

Through a shimmering looking glass Tomorrow’s soldiers will have their reality augmented. Relevant information will be superimposed on their view of the battlefield

S

uccess or failure in war often hinges on how much soldiers know about the enemy and the areas in which it operates.

Tactical intelligence of all sorts helps. Lo­ cations of culverts where bombs may lie hidden. Spots from which snipers have scored kills. Water sources likely to have been polluted by agricultural runoff after heavy rain. Identities of locals suspected of aiding insurgents. Armed forces compile such intelligence and store it on comput­ ers. But making full use of it in the heat of battle has never been easy. This is now poised to change, thanks to display tech­ nology known as augmented reality (ar). ar is the art of superimposing comput­ er graphics on a view of the real world. It is popular in applications ranging from vid­ eo games to selling furniture. America’s ar­ my would like tactical intelligence perti­ nent to a soldier’s mission to pop up simi­ larly on a transparent visor attached to his helmet, no hands required. And for this ca­ pability, it is spending big. In March it an­ nounced a deal with Microsoft to build such a system. This could, over the course of a decade, cost a staggering $21.9bn.

The army has dubbed the kit ivas (Inte­ grated Visual Augmentation System). Da­ vid Marra, who runs Microsoft’s end of the project, describes it as a holographic com­ puter. The displays produced, he says, ap­ pear “locked to the real world”, even as a wearer moves and shifts gaze. ivas pulls off this wizardry by crunch­ ing and synthesising several types of data.

A gps receiver locates the wearer within centimetres. Instruments fi tted with accel­ erometers and gyroscopes provide infor­ mation on how he is moving around. Cam­ eras track eye movements. ivas must also be aware of a soldier’s environment. This relies on lidar, an optical equivalent of ra­ dar. An array of sensors record the time it takes infrared laser pulses bounced off nearby objects to return. That allows those

→ Also in this section 70 Early American footprints 71 The comforts of religion 71 The evolution of fruit

The Economist September 25th 2021

objects’ distances to be calculated. Mach­ ine­vision software that recognises those objects then keeps track of how they move.

Mr Marra describes the process as a “con­ tinuous rendering of the xyz co­ordinates of everything”. ivas must calculate with extraordinary speed where on a headset’s visor to display graphics. A latency of just seven millisec­ onds risks causing vestibular ocular dis­ comfort, a type of dizziness that has long plagued the development of realistic dis­ plays of augmented and virtual reality. In most circumstances, Mr Marra says, ivas operates well within that limit.

Theatre of war To build the system, Microsoft has modi­ fi ed an ar headset called HoloLens that it has so far sold mostly to businesses and re­ search outfi ts. The militarised version of this has been “ruggedised” and souped up with a computing and battery “puck”, a bit bigger than a smartphone, that the user carries on his chest.

Tactical intelligence can be uploaded before an operation, with updates trans­ mitted wirelessly as needed. ar text and graphics guide soldiers through unfamil­ iar terrain, highlight the whereabouts of friendly forces and mark the enemy’s known and suspected positions. The head­ sets will also employ facial­recognition technology to append information on pos­ sible persons of interest who come into view. As Susan Fung, the army’s deputy head of ivas technology at Fort Belvoir, in

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Virginia, puts it, soldiers freed of the need to look down at a screen will be able to “fo­ cus on moving and engaging targets”. ivas will also exchange data with Azure, Microsoft’s computing cloud. This will permit additional features, such as lan­ guage interpretation, to be included. Pro­ duction of the headsets, which weigh about a kilogram, has begun. The fi rst of an expected 120,000 or so units are to be de­ ployed this year.

Others besides the army are also inter­ ested. America’s marine corps is a partner in the ivas programme. Undisclosed allies are seeking to join. And modifi ed Holo­ Lenses may also see use on warships. Brit­ ain’s Royal Navy has paid $25.5m to bae Systems, a local defence giant, to adapt them to show pictures currently displayed on screens on the bridge to offi cers else­ where on a vessel.

The benefi ts of ar may be even greater inside tanks, from which crew typically peer at the world through periscopes. That, says Daniel Covzhun, chief technologist at Limpid Armor, an ar fi rm in Kiev, Ukraine, is like viewing the world “through a length of metal pipe”. Limpid’s system, dubbed lpmk, superimposes graphics on video im­ ages collected by cameras and infrared sensors mounted on an armoured vehicle, and will soon be able to do the same for im­ ages relayed by nearby fl ying drones.

A handful of armoured vehicles belong­ ing to Ukraine’s army have already been fi t­ ted with test versions of lpmk. Before an operation, these are fed intelligence from a battle­management system. Commanders choose what they wish to be marked with icons, says Colonel Vadym Slyusar of the Central Scientifi c Research Institute of Ar­ mament and Military Equipment, in Kiev.

Options include sewers and other under­ ground infrastructure, preferred landing zones for medical­evacuation helicopters, culturally important buildings, and spots where attacks have been recorded or are feared. The systems start at about $50,000.

Ukraine recently ordered more than 50 for delivery this autumn. The United Arab Emirates and an undisclosed Asian coun­ try have placed orders with Limpid, too. ar can also expand the capabilities of optical gear already used by soldiers. In September 2019 the American army began to use a new ar feature added to its En­ hanced Night Vision Goggle—Binoculars (envg­b), which are attached to a soldier’s helmet and fl ip down over his eyes when needed. The new feature, made by L3 Har­ ris, a fi rm in Florida, highlights sources of heat and amplifi es what light is available to render objects visible in the dark. envg­b works out the portion of the world within its wearer’s fi eld of view. It then superimposes icons on things like friendly and enemy troops, or the route to a rally point, drawing their co­ordinates

The Economist September 25th 2021

from a wireless network called Nett War­ rior. Soldiers especially like an ar mode called “rapid target acquisition”, says Lynn Bollengier, head of “integrated vision” at L3 Harris. This pulls data from an inertial­ measurement unit in a soldier’s rifl e to place crosshairs over whatever it is point­ ing at. That means a soldier can shoot from behind a corner without sticking his head out to put an eye to the rifl e’s sight. Ameri­ ca’s army and marine corps have bought more than 6,000 of the systems..

A sight to behold This is heady stuff . Even so, enhancing combat operations with ar will remain, for some time, beyond all but the most tech­ nologically sophisticated armies. Marcel Baltzer, of the Fraunhofer Institute’s cam­ pus in Wachtberg, who co­chairs an ar­re­ search team for Germany’s armed forces, believes that even the European armies most advanced in the art (which are, by his reckoning, those of Britain, Germany, Lith­ uania, the Netherlands and Norway) will need another decade. Using ar for train­ ing, and for the maintenance and design of military hardware, he adds, is easier and will become common sooner.

Ambition, at any rate, is not lacking.

Mojo Vision, a new Californian fi rm that has received money from darpa, an Amer­ ican government military­research agen­ cy, is developing an ar system embedded

in contact lenses. Tiny batteries power sensors that track a wearer’s gaze and the movement of objects in view. An array of leds roughly the size of a grain of sand pro­ jects images received via a wireless link onto the wearer’s retina. The brightness of these is adjusted according to the ambient light. Steve Sinclair, Mojo’s head of market­ ing, expects a usable version of the system to be ready in a few years’ time.

Whether or not that proves feasible, the use of ar of any sort in combat will intro­ duce risks. Designers must identify the point at which further visual augmenta­ tion will lead to confusing information overload—and what happens in training may not mirror the messiness of real bat­ tle. An imprecise data overlay could lead to a blunder. And if an ar system proves hackable, soldiers could be tricked by the enemy, with grim consequences.

A diff erent sort of pitfall also looms. ar will make it easier for distant commanders to tell soldiers in battle what to do. The risk is that offi cers sitting far away from the fi ght will “feel like they’ve got puppets on the ground”, says Axel Dyèvre, of Avisa Partners, a consultancy based in Paris that has studied ar for France’s defence minis­ try. He calls the phenomenon a “squashing of chains of command” which robs troops of the degree of autonomy needed to fi ght eff ectively. ar for combat, then, off ers per­ ils as well as promise. n

Footprints in the muds of time These tracks, from a dried-up lake bed in New Mexico, are one of several sets which radiocarbon evidence suggests were made between 21,000 and 23,000 years ago. They are described in this week’s Science by Matthew Bennett of Bournemouth University, in Britain, and his colleagues, and are the oldest undisputed evidence of human beings in North America. Few doubt that the first Americans crossed from Asia, probably over the Bering Strait when low sea levels during the last Ice Age meant it was dry land.

Exactly when, though, is unclear. The oldest human fossils in North America date from 13,000 years ago. But evidence from stone tools suggests the presence of people there as far back as 30,000 years in the past. The stone-tool evidence is, however, controversial. Such tools are hard to date directly, and may be moved into sediments older than the date of their creation by animal activity. Footprints, by contrast, stay put.

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Science & technology

The comforts of religion

The evolution of fruit

Faith and fatalism

Finding the right customer Why some fruits stop ripening when plucked, and others don’t

Religious belief really does seem to draw the sting of poverty

“R

eligion is the sigh of the oppressed creature…it is the opium of the peo­ ple.” So wrote Karl Marx in 1844. The idea— not unique to Marx—was that by promis­ ing rewards in the next life, religion helps the poor bear their lot in this one.

A paper published in the Proceedings of the National Academy of Sciences by Jana Berkessel of the University of Mannheim, in Germany, and her colleagues takes a sta­ tistical look at the claim. Ms Berkessel's cu­ riosity was piqued by a counter­intuitive fi nding in development economics. Re­ searchers know that low socioeconomic status correlates with poor mental health.

The assumption was once that, as places became richer, this eff ect would weaken.

Being poor in a rich country was presumed better than being poor in a poor one.

But that has turned out not to be true.

Abundant evidence suggests the relation­ ship between status and mental health is stronger, not weaker, in rich countries than in poor ones. Ms Berkessel, who stud­ ies the psychological eff ects of religion, noticed that economic development is also inversely correlated with religiosity—the richer a country, the more godless it tends to be. Perhaps that was driving the change?

To check, she and her colleagues ana­ lysed three surveys covering 3.3m people in 156 countries. This set of data repro­ duced the fi nding that economic develop­ ment amplifi es the link between mental health and status. It also supported the idea that religiosity could attenuate that eff ect. Among rich countries, for instance, those with higher levels of self­reported religious belief had a weaker relationship between status and mental health.

Other evidence buttresses the theory.

One study covering 11 European countries, all rich, found the link between personal income and well­being was stronger in ir­ religious places than devout ones. After much statistical crunching, Ms Berkessel concluded that declining religiosity ac­ counted for about half of the eff ect of grow­ ing wealth on the relationship between status and psychological well­being.

The upshot is that religion seems to protect people from at least some of the unpleasant eff ects of poverty. Exactly how is less clear. One hypothesis is that reli­ gious doctrine is directly protective. After all, many of the world’s biggest religions have a sceptical attitude to wealth. Along­ side the well­known biblical verses about

B

ananas, apples and avocados contin­ ue to ripen after they are picked.

Cherries, blackberries and grapes do not.

The diff erence between climacteric fruits (the former) and non­climacteric fruits (the latter) matters to fruit growers and greengrocers, who must make sure their wares are in tip­top condition when they arrive at the marketplace. But how those diff erences originally came about re­ mains unclear.

In a paper in Biology Letters, Fukano Yuya and Tachiki Yuuya of the University of Tokyo proff er a suggestion. Fruits, they observe, exist to solve a problem faced by all plants—how best to spread their progeny around. Wrapping their seeds in a sugary pulp, to provide a tasty meal, serves as a way to get animals to do this for them. They do, however, need to make sure that their fruits favour the animals most likely to do the distribut­

camels, needles and a rich person’s chance of entering the pearly gates, the research­ ers point out that the Bhagavad­Gita, a Hin­ du holy book, says “The demoniac person thinks: So much wealth do I have today, and I will gain more.” Similar sentiments can be found in the Koran and in some Buddhist texts. If God teaches that the wealthy are spiritually corrupt, or will get their comeuppance on Judgment Day, then poverty may seem less of a burden.

But there are other possibilities. Ms Berkessel points out that organised reli­ gion off ers a social­support network which might help attenuate the eff ects of low sta­

ing. Dr Fukano and Dr Tachiki propose that climacterism, or its absence, is a way to achieve this. If ground­dwelling ani­ mals are the main distributors, then the continuing ripening of fallen fruit (ie, climacterism) is benefi cial. If, by con­ trast, those distributors are arboreal or aerial, and so can feed on unfallen fruit, then non­climacteric fruits will do well.

To test their idea, the two researchers combed through 276 papers reporting on 80 sorts of fruit, and noted which ani­ mals each depended on for its propaga­ tion. Thirty­fi ve of these fruits, they discovered, were eaten by both ground­ dwelling animals and arboreal and aerial ones. But of those where one group or the other were the predominant consumers, 15 of the 19 eaten principally by ground dwellers were climacteric, while 21 of the 26 fed on by arboreal or aerial animals were non­climacteric.

That is a suggestively strong correla­ tion. And the authors’ hypothesis is fortifi ed by other evidence. They point out that non­climacteric fruits tend to have vivid colours, especially reds and purples. This may help them stand out amid the foliage of their parent plants, advertising their presence. Climacteric fruits are generally better camoufl aged.

That makes them harder to spot until they have fallen to the ground.

The main limitation of their work, say Dr Fukano and Dr Tachiki, is that most of the papers they looked at concerned fruits eaten by people. This has probably contaminated the sample, for thousands of years of selective breeding for traits that human beings fi nd appealing may have blurred any signal optimised by natural selection. The next step, there­ fore, should probably be to confi ne the analysis to wild fruits.

tus, whether or not its members really be­ lieve everything their holy texts say about wealth. Her next research project, she says, will look at exactly this point.

In the meantime, if religion really does help relieve poverty’s burden, one ques­ tion is what, if anything, to do with that knowledge. The world is, after all, getting steadily richer, meaning relative poverty’s sting will only get sharper. A cynic might recall another well­known quote about re­ ligion, this time from Seneca, a Roman philosopher. “Religion”, he wrote, “is re­ garded by the common people as true, the wise as false, and the rulers as useful.” n

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Books & arts

The Economist September 25th 2021

→ Also in this section 73 Underground London 74 The story of “12 Angry Men” 74 Dystopian fiction 75 An artist’s wizardry

Reason and its discontents

Faulty logic

A defence of reason by one of its champions is impassioned but flawed

S

teven pinker is too honest to deny that he risks blowing into his own sails. If he tried to use a reasoned argument to vali­ date rationality, he acknowledges, he would be assuming the thing he aims to es­ tablish. And so he approaches his target from the side, fi rst showing how rationali­ ty perfects human understanding, then refl ecting on how reason has brought material and moral progress. Unfortunate­ ly, though rationalists may feel affi rmed, non­believers are unlikely to be converted.

Mr Pinker, a professor at Harvard, has a lot to get off his chest. His previous book, “Enlightenment Now”, a paean to reason’s role in history, had a mixed reception in 2018. It met with praise (including in The Economist), but also objections that it was simplistic, Panglossian and selective in its evidence. A personal attack followed last year, with a vicious and shoddy campaign demanding that the Linguistic Society of America cancel him. Meanwhile, in recent decades, research in economics and psy­ chology has underlined just how far Homo

Rationality. By Steven Pinker. Viking; 432 pages; $32. Allen Lane; £25

sapiens falls short of rational beings who maximise their economic welfare and engage in truth­distilling debate.

Since Mr Pinker cannot simply argue for reason, fully seven of the book’s 11 chap­ ters instead set out a rationalist’s cate­ chism—a primer of formal logic, probabil­ ity, causation and so forth. In these passag­ es he justifi es reason by showing what it can do, using games and logical puzzles.

For instance, imagine that 1% of women suff er from breast cancer and a test for the condition is 90% accurate, but reports false positives 9% of the time. If a woman tests positive, what is the chance that she has the disease? The most common answer among a sample of doctors was 80­90%, but the correct answer is just 9%. The rea­ son is that the false positives in the 99% of women who are breast­cancer­free over­ whelm the true positives in the 1%. With­

out further data, you cannot say any more about whether this particular woman is among the true positives or the false ones.

On the face of it, the doctors’ error is damning evidence against human ratio­ nality. However, in an ingenious piece of intellectual judo, Mr Pinker turns the argu­ ment back on the irrationalists. The fact that people are easily confused by proba­ bilities, he writes, is no more evidence that they are incapable of reason than optical illusions are evidence that people cannot make sense of what they see.

They are led astray partly by how the questions are set out. By way of illustra­ tion, Mr Pinker cites “the Linda problem”, fi rst posed by the celebrated academics Daniel Kahneman and Amos Tversky.

Linda is 31 years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with is­ sues of discrimination and social justice, and also participated in anti­nuclear de­ monstrations. Please indicate the probabili­ ty of each of these statements: Linda is a teacher in an elementary school.

Linda is active in the feminist movement.

Linda is a psychiatric social worker.

Linda is a bank teller.

Linda is an insurance salesperson.

Linda is a bank teller and is active in the fem­ inist movement.

Respondents tend to say that Linda is more likely to be a feminist bank teller than just a bank teller, which cannot be

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The Economist September 25th 2021

true as the set of bank tellers includes all the feminists and non­feminists alike. Mr Pinker argues that such cognitive illusions may arise because people are using their intelligence to hypothesise about a social reality in which they meet a person called Linda, rather than to frame the problem as a logical puzzle. When they are told to imagine 1,000 women like Linda and asked how many belong in each category, the error rate tumbles.

QAnon and on Ever the optimist, Mr Pinker sees the glass half­full. He rejects the idea that the hu­ man brain is “a basket of delusions”. The rationalist techniques he describes help people correct biases and hasty judgments.

They extend humans’ remarkable powers of thought, just as microscopes and tele­ scopes extend the range of their sight. The miracle is not that people make mistakes, but how easily they can be helped to see through them. Anyone can learn to reason better; indeed, Mr Pinker goes on to argue that rationality should join reading, writ­ ing and arithmetic as a fourth r.

This is all very well, but it produces an inverted doughnut of a book. To begin and end with, Mr Pinker serves up helpings of jam, in which he deals with today’s attacks on reason from anti­vax conspiracy theo­ rists on the right and social­justice war­ riors on the left. In between is that ring of puzzle­solving stodge designed to show that people are capable of being rational.

For all their utility, these seven chapters are divorced from the drama of the mo­ ment, and bewilderingly Spockian in their lack of empathy. When Mr Pinker at last de­ clares on page 283 that “This is the chapter most of you have been waiting for”, you wonder why some kindly editor didn’t urge him to get to the point sooner.

The pity is that when Mr Pinker writes about the conspiracy and outrage that have infected American public life he has much to say that is interesting. He is wise enough not to blame everything on social media, nor to assert that simply elucidating Bayes’s theorem would temper QAnon sup­ porters’ fever dreams about Democratic child­murderers. Instead he observes how humans evolved “not as intuitive scien­ tists but as intuitive lawyers”, using moti­ vated reasoning to fi ght their corner. Peo­ ple are titillated by conspiracy and gossip.

And narrative and myth have a psycholog­ ical and sociological function beyond liter­ al truth and falsehood.

Rather than explore these ideas in greater depth, however, Mr Pinker rushes on to make the case for reason as the best defence against them. Rationality is im­ partial, he observes. In this, it corresponds to the ethical insight that a fair system is one that treats people dispassionately.

“Rationality, then,” he writes exultantly, “is

Books & arts

not just a cognitive virtue but a moral one.”

As for the critics who accuse him of a naive faith in progress, they misunderstand him.

In fact he believes that rationality is what wrings progress from an unforgiving uni­ verse. To illustrate his point, Mr Pinker fi nishes up with a parade of thinkers such as Erasmus, John Locke and Jeremy Ben­ tham who paved the way for material and moral improvements by deploying reason against cruelty and violence.

Yet that will not do. Rationality involves people knowing they are right. And from the French revolution on, being right has been used to justify appalling crimes. Mr Pinker would no doubt call the Terror a per­ version of reason, just as Catholics brand the Inquisition a denial of God’s love. It didn’t always seem that way at the time.

Mr Pinker is on the side of the better an­ gels. He is right about the value of reason.

He acknowledges the contingency of what is known. But he puts too little emphasis on the need to temper rationality with scepticism, and on the way certainty slides into hubris. He is not suffi ciently interest­ ed in how rationality gels with the rest of a person’s outlook. As with many dough­ nuts, this book has a hole in the middle. n The history of London

What lies beneath

London Clay: Journeys in the Deep City.

By Tom Chivers. Doubleday; 464 pages; £20

I

n 1858 london was hit by the “Great Stink” after the banks of the Thames became clogged with raw sewage. Exacer­ bated by a heatwave, the stench was over­ powering. To dispel it—and the threat of cholera—Joseph Bazalgette, a civil engi­ neer, created a sewer system that, although decrepit, is still in use today. As part of this Victorian megaproject, the Fleet river, by then little more than an open drain, was encased in cement and lost to public view.

More than a century and a half after the stream disappeared, most Londoners are unlikely to have heard of it, or to know that, where it joined the Thames, the Fleet was once almost 100 metres wide. Resi­ dents might also be surprised to learn that Westminster Abbey, where monarchs and other worthies are interred, was built on what in the 13th century was an island. The city is littered with such transformations and unexpected tales.

In “London Clay” Tom Chivers delves into the capital’s streets and uncovers some of these stories. Much of his journey

A journey to the underworld

is conducted above ground, but in one pas­ sage he descends to the “malodorous” Fleet, wisely clothed head­to­toe in protec­ tive gear. He fi nds sweeter aromas pursu­ ing the Ambrook river in a wood in south London, and intrigue in the basement of a government building where the Tyburn is rumoured to bubble up. Forgotten water­ ways are not his only interest: he stomps around Bermondsey, once surrounded by marshes, and peers into a sinkhole, the site of an abandoned Tube station.

A lifelong Londoner (and a poet), Mr Chivers knows the local history and geog­ raphy well. His book bounces back from Jack the Ripper to Geoff rey Chaucer by way of Elizabethan theatre, taking in asides on the mishmash of contemporary architec­ ture and the idiosyncrasies of passers­by. A memorable assortment of modern­day characters includes environmentalists, a youth worker and a Roman Catholic priest.

The drifting focus is sometimes discom­ bobulating, at other times charming.

The book’s anchor is what lies beneath.

As its title suggests, London’s geology is dominated by clay, along with sand and gravel in the river valley’s bedrock. Mr Chivers overlays a street map with colours representing the diff erent substrata—“half eccentric artwork, half primary­school science project”—which becomes a spring­ board for his digressions. Quirks of geolo­ gy may not interest everyone, but his tra­ vel­book­cum­memoir will open readers’ eyes to what is around and below them.

Its delight in exploration is matched by a thoughtful meditation on grief. Mr Chiv­ ers refl ects on the death of his mother when he was a teenager, visiting her grave and recalling her eff orts to preserve the site of a 16th­century theatre. He likens the scars of his sorrow to the fl ow of a river you cannot see: “It remains, the trace of a buried channel, and gives its form to the land that is your life after loss.” n

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74

Books & arts Justice on screen

Supposing they’re wrong?

Reginald Rose and the Journey of 12 Angry Men. By Phil Rosenzweig.

Fordham University Press; 314 pages; $27.95 and £22.99

I

n 1954 a young screenwriter received a summons for jury service in New York.

For the rest of his life he would describe how he sat with his peers in a homicide case, helping argue the conviction down from manslaughter to assault. The accused had punched a loudmouth who had pulled a knife in a bar and, after being struck, fell and banged his head. Reginald Rose recalled that he left the court, sat down at his typewriter and wrote the screenplay for the landmark fi lm “12 Angry Men”.

But a bit of sleuthing reveals that he may not have served on the jury. Phil Rosenzweig, the author of this fascinating book about Rose’s masterpiece, searched in court records and found the most simi­ lar case. The names of all 12 jurors and both alternates are listed; Rose’s is not among them. Yet the crime was too obscure to be known beyond the courtroom. The best explanation, Mr Rosenzweig writes, is that Rose was called up but dismissed, perhaps staying on to watch the trial.

At any rate, something inspired him.

Alongside “To Kill a Mockingbird” and “Death of a Salesman”, two other mid­cen­ tury dramas, “12 Angry Men” became a sta­ ple of American civic entertainment. Like them it appeared in several forms: fi rst as a live teleplay, later as a fi lm starring Henry Fonda and in a long afterlife on stage. The

The gentlemen of the jury

The Economist September 25th 2021

fi lm, made in 1957, depicts a roomful of ju­ rors—all white men from various walks of life—struggling to reach a consensus in a murder case. Fonda’s lone holdout eventu­ ally persuades the others to join him in a verdict of not guilty. Along the way they confront prejudice, conformity, class and the sharp edges of the legal system.

Mr Rosenzweig devotes ample space to Rose’s life and works, but the book is stron­ gest on the making of the classic fi lm. The screenwriting challenge was “to devise a case against the defendant that was strong enough for almost all jurors to vote guilty, and then to chip away at the evidence” so they could plausibly change their minds.

Two weeks of rehearsal preceded fi lming.

As the cast members ran through their lines, Sidney Lumet, the director, “moved through the room to envision each shot”.

Early on he elevated the camera, gradually bringing it lower and closer to the action to build claustrophobic tension.

Most of the 12 actors had backgrounds in theatre and fi lming had a repertory feel.

“You didn’t screw around on a Hank Fonda set,” said the assistant director; but the at­ mosphere was much friendlier than that depicted on screen, Lumet’s praise buoy­ ing everyone’s spirits. The days “were fi lled with kissing and hugging and wild excla­ mations of joy”, said Rose, a quiet writer among eff usive show­business types.

“Actors have never been more loved than when they were loved by Sidney Lumet.”

A critical success and a favourite in Eu­ rope, the fi lm bombed in America on its re­ lease, failing to hold up against bigger hits such as “Funny Face”, “The Ten Command­ ments” and “The Bridge on the River Kwai”.

Yet over the years its stature grew, and it was remade several times. The American Film Institute now recognises it as one of the 20th century’s best movies. Not much is sacred in American public life any more.

The jury itself is one of the holdouts. n

Dystopian fiction

Life, the universe and everything Bewilderment. By Richard Powers. W.W. Norton & Company; 288 pages; $27.95.

William Heinemann; £18.99

A

n ecological epic about deforesta­ tion, “The Overstory” brought Richard Powers a wider readership when it won a Pulitzer in 2019. His new novel, shortlisted for this year’s Booker prize, may make him even better known. It is a shorter, more in­ timate tale that still wrestles with the sci­ entifi c themes that are his hallmark.

The story is set in Wisconsin and nar­ rated by Theo, a widowed astrobiologist.

He is struggling to bring up his son, Robin, whose diagnosis of autism he resists, and whom the novel follows from the age of eight to ten. Robin’s mother, Alyssa, re­ cently died in a car crash; he is disruptive at school. Distressed about global warming and the ruin of the natural world, he is con­ soled by playing a game in which he and his father imagine life on other planets.

When the trouble at school escalates, the possibility arises of Robin taking part in a pioneering neuro­imaging therapy, which reduces his stress levels by teaching him to mimic his mother’s erstwhile brain activity. Theo agrees to let Robin appear in the programme’s publicity fi lm, but the re­ sulting attention spirals out of control.

This science­tinged home­schooling drama takes place against a dystopian backdrop of extreme weather, crop failures and rampaging militias—encouraged by an authoritarian president who locks up journalists and outlaws dissent. Sabres rat­ tle between America and China. By the end, a viral brain disease has spread from cattle to humans. “Bewilderment” comes to resemble a fi ctional cousin of “The Road”, Cormac McCarthy’s novel of 2006 in which a widowed father and his son tell each other stories during an apocalypse.

The regretful past tense in which Theo recounts events generates suspense, as does the nagging question of why Robin’s dialogue (like Alyssa’s) is presented in ital­ ics, whereas the rest appears in inverted commas. By folding his vast themes into a blend of speculative fi ction and domestic realism, Mr Powers succeeds in engaging both head and heart. And through its cen­ tral story of bereavement, this novel of par­ enting and the environment becomes a multifaceted exploration of mortality. n Back Story, our new culture column, is online at economist.com/books-and-arts

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The Economist September 25th 2021

Books & arts

Contemporary art

The man behind the curtain

ARLES

Philippe Parreno’s work is at once high-tech and primeval

O

n the afternoon before this sum­ mer’s offi cial opening of Luma Arles, an impressive new art centre in the south of France, a triangular pool in the corner of one of the ground­fl oor galleries began to overfl ow. Visitors were more amused than perturbed as the water seeped inexorably across the parquet fl oor. Even when the circular blue carpet in the centre of the room became sodden and dark, onlookers suspected it was part of the show. The gallery had been given over to Philippe Parreno, a French conceptual artist whose work challenges notions of what an art exhibition can be. Mr Parreno watched in silence as the water spread.

Born in Oran, Algeria, and brought up in Grenoble, one of France’s most tech­savvy cities, Mr Parreno, now 57, fi rst came to the notice of the art world in the early 1990s, just as the internet was taking off . Hans Ulrich Obrist, artistic director of the Ser­ pentine Gallery in London, remembers a work he created in a summer garden in Villa Arson in Nice. It was made entirely of artifi cial fi refl ies which, by day, no one could see; they were visible only at night when the museum was closed. Andrea Lissoni, who worked closely with the artist at Tate Modern, recalls an early show in New York in which fi sh­shaped balloons fi lled with helium were let loose in a gallery, to be arranged and rearranged by visitors. The resulting excitement, espe­ cially among children, contrasted exuber­ antly with the sombre reverence generally considered normal in art galleries.

Diff erent as they were, both shows demonstrated the artistic preoccupations which, says Mr Parreno, have gripped him over the past 30 years. These include an obsessive focus on time rather than objects; the use of various media (whether fi lm, sound or performance); an enthusi­ asm for working with collaborators rather than alone; the exploration of artifi cial intelligence and even organic materials such as yeast as artistic “agents” that help shape his artworks; and a preference for site­specifi c projects rather than shows that can travel from gallery to gallery. Per­ haps above all comes Mr Parreno’s insis­ tence that the intervention of the audience is a key part of any exhibition.

For his next trick Over the decades his work has grown ever­ more complex; to some, it has become incomprehensible. In the installation he created in 2016 for the Turbine Hall at Tate Modern, Mr Parreno assembled an array of data about the building, including the tem­ perature of the galleries at diff erent times of the day, recordings of the sounds made by the industrial piping that runs through it, and the wind speed on the roof. All this was relayed by computer and fi bre­optic cables into a vast tub of live yeast placed behind glass at one end of the hall.

The energy created was used to subtly change the atmosphere in the hall. Visitors found themselves subjected to clanging roars, recordings of the whoosh of the nearby river and the slap of boats on the

shore, while assorted fi lms by Mr Parreno were projected on screens that moved up and down on cables suspended from the ceiling. “It was a space within a space,” he says now, “and within that space you had another space.” He insists the sounds and screens were controlled by the yeast. One critic likened it to an “alien intelligence”.

This sort of art is not for everyone. But for those wanting to understand the French artist’s ambitions, his installation at Luma Arles is a good place to start. It has two parts: an 80­minute fi lm by Mr Parreno and a projection based on how the audi­ ence reacts to it. Visitors are invited to sit on benches set in a circle, which is itself mounted in the middle of the fl oor. From time to time the circle turns, fi rst in one di­ rection, then the other. The window blinds move up and down, depending on the level of sunshine outside. A drone fl oating at ceiling level records the audience’s reac­ tions and plays their whisperings back into the room. “The whole thing is a learning process,” Mr Parreno says. “Because the audience always responds in a diff erent way, every showing is unique.”

The fi lm, meanwhile, is made from re­edits of several earlier pieces. Out of a sequence on the biology of the cuttlefi sh, for example, or on the journey taken by the train carrying Robert Kennedy’s body from Los Angeles to the east coast after he was assassinated, Mr Parreno presents a com­ pletely new narrative that appears to be nothing less than the story of life.

The fi rst frames depict a starlit dark­ ness at the edge of a galaxy far beyond this one. From there the viewer is transported around the surface of the sun, through the heavens and down towards Earth where a bug­eyed creature (the cuttlefi sh from an earlier fi lm, “Anywhen”, fi rst shown at Tate Modern) seems to be emerging from a swamp. Humankind evolves and gathers in dense cities, living in squalid apart­ ments in Chinatown or the opulent interi­ or of the Waldorf Astoria hotel, and all along the railway sidings of America. The “other” is ever­present, in the form of the immigrant, the alien and various charac­ ters with diff erent voices all performed by Nina Conti, an English ventriloquist. The eff ect is surreal and mesmerising.

Designed by Frank Gehry, the Luma it­ self is a grandiose tower that looms over the old city of Arles, visually harking back to a confi dent, pre­pandemic world. By contrast, Mr Parreno’s installation—tech­ heavy yet refashioned from earlier works, made in collaboration with others, telling stories about fragile humanity—suits the moment. The seepage from the overfl ow­ ing pool in the corner of the gallery turned out to be the result of a tap accidentally left on by a workman. But such is Mr Parreno’s wizardry that you would be forgiven for thinking it was all part of the story. n

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Economic & financial indicators

The Economist September 25th 2021

Economic data

United States China Japan Britain Canada Euro area Austria Belgium France Germany Greece Italy Netherlands Spain Czech Republic Denmark Norway Poland Russia Sweden Switzerland Turkey Australia Hong Kong India Indonesia Malaysia Pakistan Philippines Singapore South Korea Taiwan Thailand Argentina Brazil Chile Colombia Mexico Peru Egypt Israel Saudi Arabia South Africa

Gross domestic product

Consumer prices

% change on year ago latest quarter* 2021†

% change on year ago latest 2021†

12.2 7.9 7.6 22.2 12.7 14.3 12.0 14.9 18.7 9.4 16.4 17.3 9.7 19.8 8.9 8.7 6.1 11.2 10.5 9.5 7.7 21.7 9.6 7.6 20.1 7.1 16.1 4.7 11.8 14.7 6.0 7.4 7.5 17.9 12.4 18.1 17.0 19.6 41.9 7.7 17.5 -4.1 19.3

6.6 Q2 5.3 Q2 1.9 Q2 20.7 Q2 -1.1 Q2 9.2 Q2 21.1 Q2 7.0 Q2 4.5 Q2 6.7 Q2 14.5 Q2 11.2 Q2 13.1 Q2 11.5 Q2 4.2 Q2 9.3 Q2 4.4 Q2 8.7 Q2 na Q2 3.6 Q2 7.4 Q2 na Q2 2.7 Q2 -3.7 Q2 -41.2 Q2 na Q2 na 2021** na Q2 -5.1 Q2 -7.2 Q2 3.1 Q2 -4.2 Q2 1.5 Q2 -5.5 Q2 -0.2 Q2 4.2 Q2 -9.2 Q2 6.0 Q2 3.5 Q2 na Q2 16.6 2020 na Q2 4.7 Q2

6.0 8.0 2.3 6.6 5.4 4.8 3.1 4.8 5.5 3.1 5.4 6.0 3.9 6.2 3.5 2.8 3.0 5.3 3.8 4.0 3.5 6.3 4.3 5.4 8.2 3.0 3.8 3.8 4.3 5.4 3.9 5.7 1.4 7.8 5.5 10.3 7.8 6.4 12.6 3.3 5.0 2.2 4.5

5.3 0.8 -0.3 3.2 4.1 3.0 3.2 2.7 1.9 3.9 1.9 2.0 2.4 3.3 4.1 1.8 3.4 5.5 6.7 2.1 0.9 19.3 3.8 1.6 5.3 1.6 2.2 8.4 4.9 2.5 2.6 2.4 nil 51.4 9.7 4.8 4.4 5.6 5.0 5.7 2.2 0.3 5.1

Aug Aug Jul Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Q2 Aug Aug Aug Jul Aug Aug Jul Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug

3.6 1.2 -0.2 2.6 3.0 1.9 2.4 2.1 1.6 2.5 0.1 1.3 2.2 2.0 2.7 1.4 3.0 4.1 5.8 1.9 0.3 17.1 2.5 1.6 5.4 2.0 2.4 9.2 4.1 1.8 2.2 1.8 0.8 47.5 7.5 3.9 3.1 5.2 3.6 5.5 1.7 3.2 4.3

Unemployment rate

Current-account balance

Budget balance

%

% of GDP, 2021†

% of GDP, 2021†

5.2 5.1 2.8 4.6 7.1 7.6 6.2 5.9 7.9 3.6 14.6 9.3 3.2 14.3 2.8 3.8 4.8 5.8 4.5 8.5 2.9 12.1 4.5 4.7 8.3 6.3 4.8 6.9 6.9 2.7 2.6 4.1 1.5 10.2 14.1 8.9 14.3 4.1 10.1 7.3 5.0 6.5 34.4

Aug Aug‡§ Jul Jun†† Aug Jul Jul Jul Jul Jul Jul Jul Aug Jul Jul‡ Jul Jun‡‡ Aug§ Jul§ Aug§ Aug Jul§ Aug Aug‡‡ Aug Q1§ Jul§ 2019 Q3§ Q2 Aug§ Aug Dec§ Q1§ Jun§‡‡ Jul§‡‡ Jul§ Jul Aug§ Q2§ Jul Q1 Q2§

-3.0 2.8 3.4 -4.5 -1.7 3.3 2.7 -0.2 -1.4 6.7 -3.8 3.8 9.8 0.8 3.2 7.8 6.9 2.3 4.5 4.3 6.8 -2.4 1.9 2.5 -1.0 0.3 4.0 -3.3 -0.9 19.4 4.9 15.5 -0.9 1.3 0.1 -1.5 -3.4 1.6 -3.6 -4.6 3.8 4.5 1.8

-12.6 -4.9 -8.9 -10.9 -8.9 -7.2 -7.7 -7.2 -8.7 -5.7 -5.7 -11.5 -4.7 -8.7 -8.5 -0.5 -3.0 -6.6 -1.8 -1.9 -3.8 -2.4 -6.1 -4.2 -7.2 -6.0 -6.0 -7.2 -7.5 -4.2 -4.4 -0.8 -7.5 -5.5 -5.9 -6.7 -8.5 -2.8 -5.8 -8.1 -7.0 -2.0 -9.0

Interest rates

Currency units

10-yr gov't bonds change on latest,% year ago, bp

per $ % change Sep 22nd on year ago

1.3 2.7 §§ nil 0.8 1.2 -0.3 -0.1 nil nil -0.3 0.7 0.7 -0.4 0.3 2.0 nil 1.4 2.0 7.3 0.2 -0.2 16.7 1.2 1.1 6.1 6.2 3.4 9.9 ††† 4.4 1.4 2.1 0.4 1.6 na 10.7 5.2 7.4 7.1 6.4 na 1.1 na 9.1

64.0 -23.0 -8.0 57.0 65.0 18.0 25.0 24.0 25.0 18.0 -35.0 -20.0 11.0 6.0 111 39.0 76.0 65.0 82.0 36.0 27.0 310 34.0 60.0 13.0 -69.0 61.0 42.0 121 58.0 60.0 2.0 42.0 na 349 258 221 145 297 na 42.0 na -33.0

6.47 110 0.73 1.28 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85 21.6 6.34 8.62 3.94 72.7 8.66 0.92 8.64 1.38 7.79 73.9 14,242 4.19 168 50.3 1.35 1,175 27.8 33.5 98.5 5.28 784 3,833 20.0 4.11 15.7 3.20 3.75 14.7

5.0 -4.2 8.2 3.9 nil nil nil nil nil

8.5 -2.5 4.7 2.8 il 2 7 5 4 8 -1.4 -1.4 -3.5 1.5 -0.8 4.4 -6.2 -23.2 2.8 -1.4 -0.6 7.4 -13.6 0.5 7.2 nil 13.7

Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds.

Commodities

Markets % change on: In local currency

United States S&P 500 United States NAScomp China Shanghai Comp China Shenzhen Comp Japan Nikkei 225 Japan Topix Britain FTSE 100 Canada S&P TSX Euro area EURO STOXX 50 France CAC 40 Germany DAX* Italy FTSE/MIB Netherlands AEX Spain IBEX 35 Poland WIG Russia RTS, $ terms Switzerland SMI Turkey BIST Australia All Ord. Hong Kong Hang Seng India BSE Indonesia IDX Malaysia KLSE

Index Sep 22nd

4,395.6 14,896.9 3,628.5 2,440.1 29,639.4 2,043.6 7,083.4 20,401.5 4,150.2 6,637.0 15,506.7 25,717.5 792.4 8,808.4 70,950.8 1,747.3 11,837.6 1,407.5 7,593.8 24,221.5 58,927.3 6,108.3 1,529.0

one week

-1.9 -1.7 -0.8 -1.9 -2.9 -2.5 1.0 -1.4 0.1 0.8 -0.7 -0.2 -0.2 2.0 -1.1 -1.1 -1.2 -1.2 -1.7 -3.2 0.3 nil -1.7

% change on:

Dec 31st 2020

17.0 15.6 4.5 4.8 8.0 13.2 9.6 17.0 16.8 19.6 13.0 15.7 26.9 9.1 24.4 25.9 10.6 -4.7 10.8 -11.1 23.4 2.2 -6.0

index Sep 22nd

Pakistan KSE Singapore STI South Korea KOSPI Taiwan TWI Thailand SET Argentina MERV Brazil BVSP Mexico IPC Egypt EGX 30 Israel TA-125 Saudi Arabia Tadawul South Africa JSE AS World, dev'd MSCI Emerging markets MSCI

45,597.2 3,048.1 3,140.5 16,925.8 1,619.6 74,750.3 112,282.3 51,338.3 10,596.1 1,852.5 11,270.6 63,353.1 3,074.4 1,262.8

one week

-2.4 -0.3 -0.4 -2.5 -0.5 -4.8 -2.4 -1.6 -5.0 -0.5 -1.2 -1.6 -1.7 -2.0

Dec 31st 2020

4.2 7.2 9.3 14.9 11.7 45.9 -5.7 16.5 -2.3 18.1 29.7 6.6 14.3 -2.2

Investment grade High-yield

2015=100

latest

116 335

Dec 31st 2020

136 429

Sources: Refinitiv Datastream; Standard & Poor's Global Fixed Income Research. *Total return index.

% change on Sep 14th Sep 21st* month year

Dollar Index All Items Food Industrials All Non-food agriculturals Metals

153.1 127.5

143.5 126.8

-11.3 -3.1

14.6 24.4

177.0 136.3 189.1

159.1 139.5 164.9

-16.5 -0.6 -19.7

8.3 37.3 2.9

Sterling Index All items

168.7

160.5

-10.7

6.9

Euro Index All items

143.6

135.7

-11.0

14.4

1,807.8

1,779.0

-1.5

-6.5

73.7

74.7

5.0

78.8

Gold $ per oz Brent $ per barrel

US corporate bonds, spread over Treasuries Basis points

The Economist commodity-price index

Sources: Bloomberg; CME Group; Cotlook; Refinitiv Datastream; Fastmarkets; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional.

For more countries and additional data, visit Economist.com/indicators

The Economist September 25th 2021 77

→ Genetic data suggest it took just 500 years to settle all of eastern Polynesia The settlement of Polynesia Equator

Reconstructed from the genes of modern inhabitants

Taiwan Samoa

KIRIBATI

Easter Island

North Marquesas 1330

l y n e s i a o P

TUVALU

Samoa

South Marquesas 1140

Pallisers

COOK ISLANDS (New Zealand)

FRENCH POLYNESIA (France)

1050

1190

Tubuai

830AD

Tonga

Rimatara

Too early to date

uI

s.

Mangareva 1130

1150

Fiji Too early to date

ot

m

Rarotonga

1340

P A C I F I C O C E A N

Tahiti

Atiu Mauke 1190

500 km

1110

a Tu

012

Graphic detail History and genetics

Raivavae

PITCAIRN ISLANDS (Britain)

1360

Easter Island (Chile) 1210

Rapa Iti

Genetic diversity

1190

Higher

Lower

How gene variants were lost during colonisation The founder effect

Genetic drift

A small group travels to a new island. By chance none of them has the red variant found in the original population, so their descendants lack this variant.

The red variant becomes less common over generations due to random chance, and is eventually lost from the gene pool. This is more likely to occur in a small population.

→

→

→

→

Source: “Paths and timings of the peopling of Polynesia inferred from genomic networks”, by A.G. Ioannidis et al., Nature, 2021

To the ends of the Earth Genes reveal how and when humans reached remote corners of the Pacific

T

he colonisation of the Pacifi c Ocean was one of the great feats of human navigation. Groups of a few dozen people, travelling in canoes carved from trees, dis­ covered and settled hundreds of tiny is­ lands separated by vast spans of open wa­ ter. They found their way using the stars, dead reckoning and study of the wind.

Exactly when these trips occurred, and in which order, is unclear. Oral histories are richly detailed, but vague on dates. The colonisers moved too fast for linguistic analysis to yield answers. Archaeological evidence is scant. But a new paper by Alex Ioannidis of Stanford University and 26 other scholars claims to have clarifi ed this fuzzy history using genetics, by analysing the dna of 430 modern­day Polynesians.

Polynesian prehistory reaches back to the island now called Taiwan. From there, starting in around 2500bc, the ancestors of today’s Pacifi c Islanders are thought to have spread through the Philippines and Indonesia to western Polynesian islands such as Samoa and Fiji. They paused there for centuries or more, before venturing on to the vast emptiness of the Pacifi c. The au­ thors focus on this second expansion.

The team relied on a genetic pattern called the “founder eff ect”. Each canoe probably carried only a few dozen people, out of hundreds or thousands living on the originating island. These pioneers’ de­ scendants should thus be less genetically diverse than people on the island from which their ancestors came. Every subse­ quent colonisation should have created a new genetic bottleneck. The authors deter­ mined the order of the voyages by fi nding this signature in modern genomes, while excluding confounding chunks of dna contributed by later arrivals from Europe.

The dates are less certain than the se­ quence. Genomics counts time in genera­ tions, not years. However, research on oth­

er places in pre­modern time periods, such as 17th­century Iceland and rural Quebec in the 1800s, suggests an average generation length of 30 years.

The study shows that the Polynesians moved quickly once they set out into open ocean. One of the fi rst colonisation voyag­ es probably set off in around 830ad from Samoa to Rarotonga—the largest of the Cook Islands, a 67­square­kilometre speck about 1,500km to the south­east. By 1050, explorers seem to have reached Tahiti. Just 50 years later, they had probably set foot in the Tuamotu Islands, a 1,500km­long se­ ries of tiny atolls. A heroic 2,600km jour­ ney from Mangareva to Easter Island, one of the remotest dots of land on the planet, is likely to have occurred in around 1210.

This chronology is of course inexact.

However, the authors are confi dent in the sequence, and say that the total dating er­ ror should be only around 60 years. More­ over, their account is compatible with both archaeological records and Polynesians’ own oral histories. For those who know how to read it, the history of the Polynesian voyagers lives on in their descendants. n

012

78

Obituary Clive Sinclair

Invent or bust

Sir Clive Sinclair, innovator and prophet, died on September 16th, aged 81

U

nusually, the portrait of Clive Sinclair most Britons had in their heads was not vertical, but half­horizontal. He was re­ clining, with balding head, glasses and gingery beard, in his C5 electric tricycle. His legs were stretched out to work the pedals, in case the battery packed up, and his knees were raised, in order to steer the machine. It was January 1985, and snow lay on the ground. That accounted for the scarf round his neck, oddly teamed with a suit, but not entirely for his slightly anxious expression.

He was driving his dream: an electric vehicle for the masses. It was cheap, only £399, and you could buy it at the supermarket or even in Woolworth’s. Anyone over 14 could legally drive it without tax, a licence or insurance. It was stylish and light, with a body of tough polypropylene and wheels of nylon reinforced with glass.

After a night of charging, it could go 20 miles. How easy now to pop to the shops, nip into a parking space and buzz happily about!

Yet the reason he was not smiling much himself, on launch day, was that the C5’s drawbacks were becoming clearer. First, the wobbling driver was so low to the road that he or she was below the sightline of any vehicle alongside. Second, the engine was slow and could not cope with hills. And third, without a roof or sides to speak of, what happened when it rained?

He had invested millions in the C5, and in the end only about 5,000 were sold. His mistake; he’d been in too much of a rush. He lost pretty well everything then: Sinclair Vehicles went bust, and he had to sell his computer company to Amstrad. But was it the end of the world? Lord no. He had never pretended to be a busi­ nessman. He was an innovator, whose job was to spot opportuni­ ties and think up devices that people badly wanted but could not imagine. On top of that, he was a high­stakes poker­player. The C5 had been a good idea, and still was. So, on to the next thing.

A whole raft of successes lay behind him. He had realised early that people liked gadgets, and liked them small. At 18 he was alrea­

The Economist September 25th 2021

dy devising miniature radio kits, and at 22 was selling them by mail order. Then, after a whirl with mini­amplifi ers, came Sinclair pocket calculators. At a time (1972) when calculators were the size of bricks, these were a mere 9mm thick, powered by a microchip.

They made his name. A pocket tv came next, not much bigger. His best wheeze of all, though, was to miniaturise computers. People thought of them as bulky, baffl ing machines that cost the earth. He set out to show that they could sit on a desk, no bigger than a book, and that every home in the land could aff ord to have one.

His fi rst attempt, the ZX80 (in 1980), was a fl at box without a screen that stored data on a cassette. But it was only £99.95, a fi fth of the usual price of a home computer, and it could do, he prom­ ised, “quite literally anything”. Anyway, he soon devised a better one. The ZX81 had only 1k of memory, but it was even cheaper; you could type Basic programmes on it and you could make the display do interesting things. They sold in thousands, and Sinclair Radi­ onics was soon turning profi ts of £14m a year. His real triumph, though, came in 1982 with the ZX Spectrum 48K. It had colour and sound, even if the colours clashed and the sound was buzzes and farts. With much patience, and a spark of ingenuity, you could make all kinds of games on it. A generation of coders and program­ mers learned their craft on the “Speccie” and worshipped him as Uncle Clive, a sort of amiable boffi n—though he himself was pret­ ty annoyed to see his devices used for “Manic Miner” and “Chuckie Egg”, rather than for properly intellectual pursuits.

He was no mild boffi n, either. It was true that his fi rst hero had been the inventor­character in “Toytown” on the radio, and he spent a serious, solitary childhood designing submarines and rig­ ging up telecoms systems for his hideout in the woods. But he had a wild side. He held famously drunken parties, made no secret of his shapely girlfriends and once beat up a colleague with a rolled­ up copy of the Daily Telegraph. He liked the tag “genius” no better, though he was chairman of British Mensa and had an iq of 159. His most comfortable public role was as the British inventor who could take on the world, or in his case Atari, Commodore and ibm, who despite their appalling designs were hot on his heels. The tab­ loids embraced him, Margaret Thatcher loved him, the queen knighted him and Cambridge, his base, thanked him for trans­ forming the town into Britain’s Silicon Valley.

His apogee was brief, as apogees are. His rivals soon overtook him, and the C5 debacle did the rest. Cracks had shown up already, mostly caused by his insistence on few and cheap components.

The switch contacts in his pocket calculators tended to oxidise, so that they could not be turned off and sometimes caught fi re. His plastic digital watch, the fi rst with a single chip, looked elegant but had problems working. Even the Spectrum displayed his cor­ ner­cutting with a rubber­moulded keyboard that felt, some said, like pressing dead men’s fl esh. But that was how it was so cheap.

Glitches, in short, were part of progress. He was showing the public where the future lay, and teaching them to engage with new technology rather than fear it. So on he went. Personal transport remained his favourite fi eld; he produced an electric bike wrapped in an acrylic bubble, sadly a little too like the C5, and an A­bike so very light and foldable that it proved impossible to ride. The dream of a little electric car continued, and he liked to drop hints that he was still devising one. But something always delayed its coming.

In his later years he lived in a world where almost every pocket contained a calculator, tv, worldwide communications and infi ­ nite games, all combined in a device half the thickness of his cal­ culator. Electric cars and scooters purred on the roads, and digital timepieces were the norm. He was not bitter to see his future com­ ing to pass too late. But nor did he embrace it. He couldn’t be both­ ered with computers, email or the internet, preferring print, paper and his constant companion, a slide­rule. Anything technical near him just distracted him from inventing. He liked classical music, poetry and good wine; and, for personal transport, preferably his two feet running, no battery required. n

012

Subscriber-only live digital event

The 2021 German elections results Monday September 27th 6pm cet / 5pm bst / 12pm edt / 9am pdt Join The Economist for a discussion about the results, the day after this vital election.

Our panel will share their thoughts on what the outcome means for Germany and its position as a leading power in Europe.

Participants can submit their questions in advance to: subwebinar@economist.com

Reserve your space: economist.com/germanevent

Zanny Minton Beddoes Editor-in-chief

Tom Nuttall Berlin bureau chief

Joerg Lau Foreign policy editor Die Zeit

012

IMAGINATION TAKES FLIGHT